Wednesday, July 19, 2017

NGL: Dividends stable, share of profits improves


This week, we at Bourse take a closer look at the performance of Trinidad and Tobago NGL Limited (TTNGL) for the year ended December 2016. While exports of Natural Gas Liquids (NGLs) remain low, energy commodity prices have steadily improved throughout the year, which resulted in an improvement of TTNGL’s Share of Profit from PPGPL. We discuss the main factors which affected TTNGL’s performance as well as provide an outlook. Our full review GHL’s 2016 performance is also available on our website at www.bourseinvestment.com.

Trinidad and Tobago NGL Limited (TTNGL)

TTNGL reported Earnings per Share of $1.16 for the year ended December 2016, a decline of 51.7 per cent from $2.40 in the previous year. A closer look at the numbers, however, reveals an Impairment Reversal of $235.2m in FY 2015, which would have had a significant positive impact on reported EPS. In 2016, Impairment reversal had a positive impact of just $17.8m. This is in relation to an impairment loss of $1.1b which was recognised in 2014. Adjusting for this non-cash, ‘non-operating’ item, Earnings per Share would have been $0.88 and $1.04 in 2015 and 2016 respectively, or an improvement of 19.2 per cent.
TTNGL’s performance was driven by higher profits generated by its sole investee company, Phoenix Park Gas Processors Ltd (PPGPL), of which TTNGL owns 39 per cent. In 2016, the Share of Profit from PPGPL moved from $136.3m to $164.0m, up $27.7m (20.3 per cent).
Outlook
The prices of Natural Gas Liquids (NGLs), based on a weighted basket of propane, butane and natural gasoline, averaged US$ 0.713 during 2015 and US$ 0.685 in 2016, down 3.9 per cent. PPGPL’s revenue would have benefitted from improving NGL prices throughout 2016. Based on publicly available data, exports of NGLs by PPGPL increased in the latter half of the year, which coincided with higher NGL prices.
On the volume side however, export of NGLs from PPGPL remained subdued when compared to previous years. Export of propane, butane and natural gasoline declined by 21 per cent, 27 per cent and 20 per cent respectively, from 2015 levels.
Looking ahead, new gas production—expected to be commissioned in 2017 and 2018—could boost production and subsequently export levels of NGLs. On 15th March 2017, the Government of Trinidad and Tobago signed an agreement with the Government of Venezuela, with respect to the construction, operation and maintenance of a gas pipeline, connecting the Dragon Field in Venezuela to the Hibiscus Field in Trinidad. Venezuela’s Minister of Petroleum, Nelson Martinez, who signed the agreement on behalf of his Government, stated that the idea was to start producing between 200 and 300 standard cubic feet of gas per day (mmscfd), within 2 to 3 years. This coincides to roughly 7.5 per cent of 2016 levels. This development will likely be viewed as material progress in efforts to strengthen cooperation in the energy space between hydrocarbon-rich Venezuela and Trinidad & Tobago’s well-established processing and logistics capabilities.
In 2017, propane prices have continued to improve, up 3.71 per cent. Butane prices however, have declined 19.7 per cent year-to-date, while natural gasoline have remained relatively flat.

The Bourse View
At a current price of $22.61, TTNGL trades at a trailing P/E of 19.5 times and offers investors a trailing dividend yield of 6.63 per cent; the highest on the local exchange. NGL declared a final dividend of $1.00, payable on 12th April 2017.
TTNGL reported a cash position of $366m as at December 2016, or roughly $2.36 per share. As a holding company with relatively limited cash expenses, this balance could become available for distribution to investors overtime.
On the basis of (i) a high trailing dividend yield, (ii) a healthy cash position, (iii) the potential of continued stabilization / recovery of revenues through expected improvements in local energy production and global pricing and (iv) an implicit hedge against the TTD through its USD earnings, Bourse maintains a BUY rating on NGL.
For the detailed report and access to our previous articles, please visit our website at: http://www.bourseinvestment.com
For more information on these and other investment themes, please contact Bourse Securities Limited, at 628-9100 or email us at invest@boursefinancial.com.