Monday, June 25, 2007

added more Inter Pipeline

I bolstered my Inter Pipeline Fund position today by doubling my stake, and thus lowering my adjusted cost base. See my previous post regarding Inter for my reasoning here.

Since my last purchase of IPL.UN, they announced the closing of the acquisition of the Corridor Pipeline System for approximately C$760 million (includes debt associated with Corridor's existing assets). Additionally, Inter Pipeline Fund will assume all of the debt associated with the expansion currently taking place on Corridor. The pipeline transports diluted bitumen from the Athabasca Oil Sands Project (AOSP) near Fort McMurray, Alberta, to the Scotford Upgrader near Fort Saskatchewan, Alberta.

This acquisition makes IPL.UN the largest pipeline carrier of Alberta oil sands product (~50% carried by Inter).

IPL.UN is currently yielding 8.9% as of writing this.

5 comments:

Financial Jungle said...

Great timing on the post, since I was snooping around the financial #'s last night. Might pick up a few myself seeing that the operation cash flowing has been growing predictably, and the yield is close enough to their highs.

moneygardener (AKA investor99) said...

Interesting. What other trusts are you looking at, if any?

I also like:

CWI.UN
NAL.UN
PIF.UN

Financial Jungle said...

The only 3 trusts I own are YLO, PKI and NWF.

I'm not familiar with the 3 trusts you mentioned, but I took a quick glace over at MoneyCentral.

CWI.UN - I like this one. It doesn't have the usual income trust red flags: share count is flat, and long- and short-term debt are dropping! Operating cash flow is rising, and covers both capital spending and distributions. I like it even more than InterPipeline. Too bad the stock is up so much.

NAL.UN - Don't like. Capital spending is growing faster than operational cash flow. Borrowing a lot of debts. Issuing a lot of shares. Distribution > (cash from operation - capital spending). I'll pass.

PIF.UN - Only decent. Falls somewhere between the previous two trust. I'll pass.

Middle Class Millionaire said...

investor99,
I've also been looking at this name recently and really like the company. However, I have the same concerns with IPL as I do with most of the Canadian Utilities in general right now...they are expensive with most trading at around 18X forward earnings. What are your thoughts on the valuation of IPL? and are you factoring in the effect of the dividend decrease in 2011 when the trust amnesty is over?

moneygardener (AKA investor99) said...

Inter is trading at about 15x earnings. I agree that most utilities are expensive (ie FTS, TRP).

I'm not really concerned with valuation here. My strategy with trusts does not really involve capital appreciation. I just want stable distribution payments and capital stability. For a long holding period I do not believe IPL.UN is a very risky asset to own considering the way in which they derive most of their earnings (fee based).

I don't think a distribution decrease is a given in 2011. Much can happen between now and then. IPL already priced that in on November 1, 2006 when it dropped from $10.16. The market has priced the taxes they must pay in the future into the unit prices. Inter has so much time to prepare that I don't think the change will mean dist. cuts, just more moderated dist. growth. They have already said that their acquisition are partially going to make up for the tax paid.

All of these trusts have unitholder distribution stability as job one. Whichever trusts fail to keep paying steady or rising distributions will be the trusts that people sell.