GTL Crude Oil Barge Loading Facility
Gibson Energy Inc.
Wednesday's close: $25.91 a share
52-week trading range: $19.82 to $26.96 a share
Annual dividend: $1.04 a share for a yield of 4 per cent
Analysts' ratings: There were 6 buys, 4 holds and 1 sell, according to Bloomberg data. Target prices ranged from $24 a share estimated by JP Morgan analyst Jeremy Tonet, to $31 a share by Industrial Alliance Securities analyst Al Nagaraj.
Recent history: Canadian oil producers may be facing a tough time because of a shortage of pipeline capacity, but the often-overlooked energy infrastructure companies - the middleman between producer and refiner - are having a field day. Shares of the Calgary-based Gibson Energy have gained 33 per cent (including dividends) over the past year. The company, which is involved in transporting, storing and processing of crude oil and natural gas liquids, owns infrastructure-like injection stations, distribution terminals, pipelines and rail-loading facilities. The company, which went public in mid-2011, expanded further into the U.S. market last year with its $455-million (U.S.) acquisition of Omni Energy Services Corp., an environmental and production services company. When it reported fourth-quarter results on Tuesday, Gibson Energy also raised its quarterly dividend by 5.8 per cent to 27.5 cents a share. It's the third dividend hike since it went public.
Manager insight: Midstream energy companies like Gibson Energy may not be the typical way to play a North American oil and gas boom, but this group now has the power to raise prices without risking the loss of business because the pipelines are full, says David Burrows, president of Barometer Capital Management. "There is no way around it. There is no spare capacity in the system."
Gibson Energy is turning to trucks and railways to ship oil to refiners across North America. "They definitely have pricing power...but their real leverage is in the processing," said Mr. Burrows, who holds the stock in portfolios. "They are buying cheap butane and cheap heavy oil, and mixing them to come up with light oil, which they market at a big premium."
In the current, often-volatile market environment, investors are willing to pay for predictability, he noted. "You have a company with a substantial [4-per-cent] yield with a high likelihood of it continuing to grow at a rapid pace...They have almost no exposure to the commodity prices themselves so you are not making a bet on oil prices, but a bet on volume growth and constrained capacity...We believe [Gibson Energy] will grow its dividend 10 to 15 per cent a year for the next five years, as well as have the capacity to make acquisitions."
The market, however, is "misunderstanding" the longevity of the energy-infrastructure theme playing out, he suggested. This group of Canadian companies traded in 2009 at about 11.6 times EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization), but has grown to about 15 times this year. "Many people say that these companies are expensive relative to history," he said. "But they are looking at a period where growth was considerably lower, and less predictable than it is today."