Q: Hello 5i Team,
Pembina Pipeline issued a press release yesterday in which they announced a new tolling agreement/revenue sharing agreement with shippers which would result in revenue reduction of roughly $90 million dollars per year to the company over the next decade. Today, the stock price barely reacted, which I find puzzling. Am I missing something here, or is $90 million per year not that impactful to the company's prospects??
Your thoughts would be appreciated as always.
Brian
Pembina Pipeline issued a press release yesterday in which they announced a new tolling agreement/revenue sharing agreement with shippers which would result in revenue reduction of roughly $90 million dollars per year to the company over the next decade. Today, the stock price barely reacted, which I find puzzling. Am I missing something here, or is $90 million per year not that impactful to the company's prospects??
Your thoughts would be appreciated as always.
Brian
5i Research Answer:
PPL stock has underperformed a bit, and is down 5% YTD. Some of this concern was already in the stock with prior discussions with the shippers. It has been a long-running dispute. Thus, stock impact was muted, and in fact 'certainty' can often be helpful to investor sentiment, even at a fundamental cost. PPL expects the deal to cut revenue by $50M annually. But it has $7.7B in revenue last year, so the actual hit is not seriously material to the company. The $90M is what the agreement would have cost the company if it was in place for the previous five years.