Long Position - AltaGas

Company Overview

AltaGas Ltd., founded in 1994 and headquartered in Calgary, Alberta, is a diversified North American energy infrastructure company with operations spanning utilities, midstream, and power generation. Originally established as a Western Canadian midstream business, AltaGas has expanded significantly and now employs nearly 3,000 people across Canada and the United States.

The company operates through three core segments:

• Utilities: Serving over 1.6 million customers across Canada and the United States, including Alberta, the District of Columbia, Virginia, Maryland, Michigan, and Alaska.
• Midstream: A foundational business handling more than 1.5 billion cubic feet of natural gas transactions daily.
• Power: Operating approximately 1,105 MW of clean power generation capacity.

AltaGas focuses on delivering reliable, affordable, and increasingly sustainable energy, with a growing emphasis on clean energy and LNG infrastructure.

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Investment Rationale

Stimulated Demand for Utilities

Declining natural gas prices—driven by supply growth outpacing consumption—are likely to stimulate increased demand. Lower prices typically encourage higher usage for residential heating, power generation, and industrial processes. This dynamic benefits AltaGas’s regulated utilities business, where higher volumes can offset price impacts and support stable revenues.

Diversified Operations Advantage

AltaGas’s exposure across the natural gas value chain provides balance and resilience. While upstream or production-related segments may face pricing pressure, utilities and distribution benefit from increased demand. This diversification supports stable earnings across market cycles.

LNG Export Growth and Market Diversification

AltaGas is strategically positioned to benefit from rising global LNG demand, particularly in Asian markets. Key initiatives such as the Ridley Island Energy Export Facility (REEF) and the Pipestone acquisition enhance its exposure to LNG export growth. Long-term tolling contracts, hedging strategies, and logistics partnerships—such as its transportation agreement with Canadian National Railway—further reduce earnings volatility.

Resilience in Recessionary Environments

Natural gas infrastructure has historically demonstrated resilience during economic downturns due to the essential nature of energy consumption. AltaGas’s regulated utilities and fee-based midstream assets provide predictable cash flows, offering defensive characteristics during periods of macroeconomic stress.

Favorable Energy Market Outlook

According to the U.S. Energy Information Administration, Henry Hub natural gas prices are expected to remain below $3.00/MMBtu through 2024–2025, while demand—particularly for LNG exports—continues to rise. This environment supports stable throughput volumes and selective growth opportunities for companies like AltaGas.

Commitment to Sustainability and ESG

AltaGas places strong emphasis on environmental, social, and governance (ESG) priorities, as outlined in its 2023 ESG Report. Initiatives focused on emissions reduction, safety, and diversity align with global sustainability objectives and enhance the company’s long-term investment appeal.

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Valuation

AltaGas has a market capitalization of approximately C$8.37 billion and trades near its 52-week highs, reflecting market confidence in its outlook. The company trades at a price-to-earnings ratio of roughly 13.9x, representing a reasonable valuation relative to earnings stability and growth prospects.

Earnings per share stand at approximately C$2.05. Analysts maintain a constructive outlook, with a one-year target price near C$32.67, implying meaningful upside from current levels.

AltaGas also offers an attractive income profile, with a forward dividend yield of approximately 4.22%, corresponding to an annual dividend of C$1.19. The payout ratio of roughly 54% suggests sustainability while preserving capital for growth initiatives.

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Risks and Catalysts

Key Risks

• Geopolitical and Policy Risk:
  Shifts in energy policy across major economies such as the U.S., EU, and China could affect natural gas and LNG demand. Accelerated renewable adoption could reduce long-term gas demand, though gas remains a key transition fuel.

• Market Competition:
  Increased competition from other energy infrastructure providers and renewable-focused companies may pressure margins and market share.

• Technological Disruption:
  Rapid advancements in renewable energy and storage technologies could disrupt traditional natural gas demand over the long term.

Potential Catalysts

• LNG Export Expansion:
  Increased global LNG demand and project execution at REEF could materially enhance earnings.
• Volume Growth in Utilities:
  Lower gas prices driving higher consumption support stable regulated returns.
• Dividend Growth:
  Continued earnings and cash flow growth may enable further dividend increases.

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Conclusion

AltaGas Ltd. presents a compelling long-term investment opportunity driven by its diversified energy infrastructure portfolio, stable cash flows, and strategic positioning in natural gas and LNG markets. Its defensive utilities exposure, disciplined risk management, and commitment to sustainability provide downside protection, while LNG growth and market expansion offer upside potential. Despite geopolitical, regulatory, and technological risks, AltaGas’s fundamentals support a long position for investors seeking stable returns in a transitioning energy landscape.