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TWM.TO - Tidewater Midstream & Infrastructure Ltd.


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Business worth looking at:


- IPO in 2015

- went from $0 EBITDA in 2015 to $80 million in 2018 EBITDA

- acquisition track record has been really good (acquired $450 million of assets at a 5.8x EBITDA multiple)

- EBITDA growing to $120 million in 2020

- trading at a large discount to midstream peers (7.7x 2019 EBITDA vs 12x for peers)

- due to low share price, management has stated they will not issue any equity under $2/share

- really good management team which has created and sold other midstream companies before starting tidewater

- CEO has explicitly stated that this management team is not going to manage a large midstream company and they're looking to sell once they reach a certain size

- high probability that company will be sold in the next 3-5 years


Good slide deck here: http://www.tidewatermidstream.com/uploads/links/TWM_Investor_Presentation_-_August_2018_Final.pdf

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Acumen meeting notes from earlier in August...


We met with TWM management for an update.  The company continues to progress its business plan and is quickly de-risking its capital plan.  Key highlights:


Q2 results were basically in-line with us and the Street.  Q3 looks like it will be a sequential improvement and Q4 could be much better given the company has reiterated an $80 MM EBITDA for the year;


Debt peaks sometime mid next year between $320 - $330 MM assuming that TA picks up their portion of the pipeline but with TWM remaining 100% in the Pipestone plant.  Based on run-rate guidance for mid to late next year, TWM should be at $120 MM EBITDA which translates into about $75 MM of FCF after the dividend.  So TWM will be in great shape financially to either continue funding a plethora of organic growth projects or, alternately, to massively reduce debt, both of which will contribute to equity value;


The Pipestone storage facility is progressing nicely, although it has been a bit slower to come to fruition given change of control that occurred in the main client tenant.  Demand for storage remains strong in Alberta and significant margin opportunities are available given the summer/winter spreads in natural gas.  Furthermore, with LNG in focus for the west AND east coast, storage will only grow in value.  It is possible there will be some progress made by year end on this project which would add contracted revenue, merchant capacity and contract tenor;


In the Montney at Pipestone, TWM is well underway with regulatory approvals and has a 2 year head start on its competition in the region.  It is anticipated that the company should have its regulatory approvals in hand by year end (sour facilities take longer due to safety issues);


We see the upside on TWM in the $2/sh range.  At next year’s run rate of $120 at an 8 multiple less peak debt is $1.91/sh.  Looked at another way, at a 10% FCF yield on those same targets, TWM is $2.28/sh. 


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