A lot of people sell these stocks and never look back, we try to be patient: Bushell on Algonquin

Key Concepts

• Pembina Pipeline (PBA): A company discussed for its upcoming growth projects, including Cedar LNG and data center potential, and increasing natural gas and oil volumes.
• Arc Resources (ARX): A company facing short-term production issues but with a strong outlook due to condensate demand from oil sands growth and a supportive gas price environment.
• Algonquin Power & Utilities Corp. (AQN): A utility company trading at a discount to peers, with a strategy shift towards a more concentrated asset base and potential for a re-rating.
• SAGD (Steam-Assisted Gravity Drainage): A heavy oil extraction technique that requires condensate as a diluent.
• Condensate: A light hydrocarbon liquid that is used to dilute heavy oil for transportation.
• Egress: Transportation capacity for energy products out of a region.
• US Shale: The production of oil and natural gas from shale formations in the United States.
• PE Multiple: Price-to-earnings ratio, a valuation metric.
• Re-rating: An increase in a company's valuation multiple.
• Dividend Reinvestment: Using dividend payments to purchase more shares of the same stock.

Pembina Pipeline (PBA)

Ryan Bushell highlights Pembina Pipeline as a company he is currently liking. He notes that it is not performing in line with its peers, with TC Energy and Enbridge attracting more "faster money" flow. However, Bushell believes Pembina's recent results were "quite good" and points to a diverse set of upcoming growth projects.

Key Growth Projects and Drivers:

• Cedar LNG: A significant liquefied natural gas (LNG) export project. Bushell acknowledges potential headwinds related to budget overruns but suggests that the market has seen similar situations (e.g., AltaGas) where initial sell-offs are followed by recovery.
• Data Center Potential: Bushell anticipates a data center being built in Alberta and believes Pembina is at the forefront of this opportunity.
• Increasing Natural Gas Volumes: Growth is expected from various projects in Western Canada, including Pembina's own operations.
• Oil Infrastructure Growth: For the first time in years, there is talk of growth in Pembina's oil infrastructure, potentially influenced by a change in government.

Financials and Outlook:

• 5% Yield: The company offers a 5% dividend yield, which is considered to be in the "middle lower end of its recent range."
• 5-Year Basis: Bushell views the company's prospects positively on a 5-year horizon.
• Headwinds: Bushell downplays concerns about significant headwinds, stating that Pembina's business is primarily volume-driven rather than commodity price-dependent.
• KKR Stake: A potential headwind is KKR selling its stake in the joint venture Pembina Gas Infrastructure, which Pembina may have to buy. Bushell draws a parallel to AltaGas's equity issue and subsequent stock performance, suggesting a similar pattern for Pembina.

Arc Resources (ARX)

Bushell discusses Arc Resources, acknowledging short-term production issues with a specific project, Attache, which is causing analysts to adjust their numbers.

Short-Term Pain and Long-Term Outlook:

• Production Issues: The Attache project is experiencing difficulties, leading to analyst revisions. Bushell believes this pain is "finally washing out."
• Condensate Market Strength: He sees two key factors supporting Arc. Firstly, oil sands companies (CNQ, Suncor, Cenovus, Imperial Oil) are discussing growth projects (100,000-200,000 barrels per day) that are heavy SAGD projects. These projects require condensate as a diluent, creating a strong outlook for Arc's condensate business.
• Gas Production and Price Environment: While acknowledging production issues on the gas side due to complex geological formations, Bushell is confident that Arc will eventually resolve them, given their track record. He also anticipates a more supportive gas price environment, which he believes the market is not currently crediting Arc for.

Valuation and Investment Recommendation:

• Stock Performance: The stock had a strong run above $30 but has since fallen back to the "mid to low 20s."
• Long-Term Patient Investors: Bushell recommends Arc for "long-term patient investors," suggesting it's a good time to accumulate a position.

Production Growth and Transportation:

• Egress Concerns: Bushell notes the need for egress (transportation capacity) out of Canada. He states that there is currently excess capacity.
• Incremental Wins: He is not a believer in large-scale greenfield projects but sees "small incremental wins" from projects like Trans Mountain and Enbridge adding capacity.
• US Shale Performance: A key factor to watch is how US shale production performs at current prices. Bushell questions whether US shale can continue to backfill rapid well declines.

Algonquin Power & Utilities Corp. (AQN)

Bushell addresses Algonquin Power, a company that has been "hated to hate for quite a while" but is now showing signs of improvement, with analysts warming up to its story.

Valuation Discount and Re-rating Potential:

• Pure Play Utility: Algonquin is now viewed as a "pure play utility."
• Trading at a Discount: It trades at a "five turn discount to peers," meaning its PE multiple is 13-14, while peers are at 19-20. This suggests significant potential for a "pretty good size re-rate."

Investment Philosophy and Strategy:

• Patience with Long-Term Assets: Bushell emphasizes the importance of patience with companies that have long-term assets, citing a mentor's lesson: "if the assets are good, the management's temporary."
• Necessity is the Mother of Invention: He believes that companies going through hard times, especially those with strong underlying assets, often see good returns emerge.
• Compounding Dividends: Bushell advocates for holding positions, adding to them, and reinvesting dividends to compound returns, describing it as a "solid way to compound and and return for clients."

Past Challenges and Current Situation:

• Loss of Trust: The previous management team lost trust, forcing a strategic overhaul.
• Strategy Shift: The company sold off renewable assets that were "too far afield with too many projects." The current strategy is more concentrated.
• Renewables Cycle: The company was affected by the boom and bust cycle in renewable energy companies.
• Downside Protection: Bushell believes there is "not a lot of downside left" for Algonquin.
• Low-Hanging Fruit: Opportunities exist in filing rate cases and improving asset performance, which could lead to renewed investor confidence. He notes that this re-engagement is already beginning.