Pembina Pipelines Corp. 2

I own this stock of Pembina Pipelines Corp. (TSX-PPL, NYSE-PBA). In Dec 2001 I thought it would be a good time to purchase this stock as the market was relatively low. Pipeline stocks are conservative and the return on this one was good at 9.7%. When I purchased this stock it was an Income Trust company.

Over the past year, there has been $3.3M of insider selling and $2.8M of insider buying with a net of insider selling at $0.5M. A net of insider selling at $0.5M is almost 2.5% of Market Cap and it higher percentage than most net selling I have seen.

Insiders not only have stock options but also rights. Another thing I noticed is a lot of insiders have Convertible Debentures and Preferred Shares. There is insider ownership with the CEO having shares worth around $7.6M, the CFO having shares worth around $9.2M and the chairman having shares worth around $5.1M.

The 5 year low, median and high median Price/Earnings Ratios are 21.43, 26.34 and 31.24. These are higher than the 10 year low, median and high median P/E Ratios which are 18.69, 21.45 and 24.20. I find both these sets of P/E Ratios rather high for a Utility stock. The current P/E Ratio is 33.82 based on a stock price of $42.95 and EPS for 2014 of $1.27. This stock price tests still suggests that the stock price is high.

I get a Graham price of $21.65 and the 10 year low, median and high median Price/Graham Price Ratios are 1.35, 1.55 and 1.75. The current P/GP Ratio is 1.98. This stock price test suggests that the stock price is high. I also think that the P/GP Ratios are rather high for a Utility stock.

The 10 year Price/Book Value per Share Ratio is 1.93 and the current P/B Ratio is 2.62 based on a BVPS of $18.09 and a stock price of $42.95. The current P/B Ratio is some 35% higher than the 10 year P/B Ratio. This stock price test suggests that the stock price is high.

Because this was an old income trust stock, I do not think that the stock price test based on dividend yield would be a good test. However, we can do one based on the AFFO which some analysts are still looking at. I only have AFFO values for 5 years. The 5 year median Price/AFFO Ratio is 14.10. The current P/AFFO Ratio is 19.35 a value some 37% higher. This stock price test also suggests that the stock price is high.

Recently in an article in the Globe and Mail Lou Schizas gives a technical analysis of this stock. There is an interesting article at CBC News talking about what is behind the rising opposition to Pipelines. There is a positive article about this company at Motley Fool. There is also second positive report on this stock Motley Fool.

When I look at the analysts' recommendations, I find Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $42.80, a price below the current stock price. This implied a total return of 3.56% with a capital loss of $0.35% and dividends of $3.91%.

There is inconsistency between recommendations and total return. Even at the highest 12 month stock price of $45.00 this only implies a total return of 8.68% with 3.91% from dividends and 4.77% from capital gains. Not a stellar result.

I think that the current price is too high. I also have concerns about the company paying out in dividends more than they make in earnings, about the Liquidity Ratio, the low ROE and the declining Operational Profit Margin. I am keeping an eye on this company, although, I do believe that it will be fine in the long term. See my spreadsheet at ppl.htm.

This is the second of two parts. The first part was posted on Wednesday, April 30, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

Pembina transports crude oil and natural gas liquids produced in Western Canada. It owns and operates oil sands pipelines and has a growing presence in midstream and natural gas services sectors. Pembina holds a 50% interest in the Fort Saskatchewan Ethylene Storage Facility. Its web site is here Pembina Pipelines.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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