Gibson Energy Inc (GEI: CN) delivered lower than expected first quarter, adj. EBITDA of $115 million versus our $118 million forecast and $137 million in first quarter of 2014. Company’s business environment has considerably deteriorated. Services division was weak ($16.6 million vs $22 million last year) as was Marketing ($11 million vs. 26 million). Wellsite Fluids had the biggest negative surprise ($8 million vs $17 million). Propane distribution negated falls but whether margins can hold is uncertain.
That Terminals and Pipelines, which is company’s growth business, were down 5% quarter over quarter is not a good sign. Not that there won’t be growth in that business, but the result indicates how even the most highly contracted business within GEI is vulnerable to the oil market.
Speaking of terminals and looking on the bright side, two current announcements for expansion at Hardisty were positive. Based on our $150 million cost forecast for the 1.8 million bbl of tanks, we believe the expansion can add $1.00-$1.50per share in value by 2017 (no change to target because of forecast reductions elsewhere).
We believe ongoing weakness across the business through 2015. In our view, following are major risks to be considered while investing – Commodity price differentials, Drilling and oil field activity, Financing. Valuation stands at 6.5% 2015 estimate Free Cash Yield and 10.9 times 2015 estimate Enterprise value/EBITDA. Gibson Energy Inc stock is currently trading at 20.12 while 52-week range is 18.37 – 37.77. The 1- year return remained -39.63%. Gibson Energy Inc. is a North American midstream company. The Company operates facilities and infrastructure – injection stations, terminals, pipelines, tank storage and a fleet of truck transportation units. Gibson Energy also provides retail propane service.
Whether it bounces back in 2016 will depend entirely on oil price, in our view. Company has more commodity exposure than competitors and justifies a degree of caution. We reiterate our “Sector Perform” rating as shares has already been hit hard and there is leverage to the next up-cycle.