Keyera (TSE:KEY): A Steady Hand in Volatile Energy Markets?

Keyera Corp. (TSE:KEY), a Canadian energy infrastructure giant, has long been a stalwart in the midstream sector, but does it merit a place on your watchlist in 2025? With a mix of stable cash flows, strategic partnerships, and ambitious growth projects, Keyera presents an intriguing opportunity—but its valuation and execution risks must also be weighed carefully.

Financial Resilience Amid Volatility

Keyera’s 2024 results underscore its financial strength. Full-year adjusted EBITDA rose to $1.28 billion, a 5.7% increase from 2023, driven by record performance in its Liquids Infrastructure and Marketing segments. The Gathering and Processing (G&P) segment also delivered a record annual realized margin of $413 million, benefiting from higher throughput at key gas plants like Wapiti and Pipestone.

The company’s dividend policy remains a highlight: it announced a $0.52 per-share dividend for Q1 2025, marking consistent payouts despite quarterly earnings volatility. However, investors should note that Q1 2025 earnings remain unreported, with only trailing metrics (e.g., a P/E ratio of 21.97) and historical performance (e.g., Q2 2024 EPS of $0.62) available. This lack of near-term clarity could deter short-term traders but may not faze long-term investors focused on Keyera’s 7–8% compound annual EBITDA growth target through 2027.

Strategic Moves to Expand Market Reach

Keyera’s recent partnership with AltaGas (TSE:HAL) is a game-changer. The 15-year tolling agreement at AltaGas’s Ridley Island Energy Export Facility (REEF) secures 12,500 barrels per day (Bbl/d) of LPG export capacity, enabling Keyera to tap into high-value Asian markets. Simultaneously, AltaGas’s 18-year fractionation agreement at Keyera’s Fort Saskatchewan facility guarantees 8,000 Bbl/d of processing capacity, reducing both companies’ infrastructure risks and bolstering cash flow predictability.

The REEF terminal, set to begin operations by late 2026, offers a 10-day shipping advantage to Northeast Asia, a critical edge in a globally competitive LPG market. For Keyera, this collaboration aligns with its fee-for-service model, which currently accounts for 70% of its EBITDA, ensuring stable revenue streams even as commodity prices fluctuate.

Growth Pipeline: Ambitious but Capital-Intensive

Keyera’s 2025 capital budget of $300–$330 million focuses on high-return projects:
- KFS Frac II: A $85 million expansion adding 8,000 Bbl/d of fractionation capacity, set to come online by mid-2026.
- KFS Frac III: A $47,000 Bbl/d expansion targeting 2028, pending customer commitments.
- KAPS Zone 4: Front-end engineering underway to boost condensate extraction.

These projects aim to capitalize on rising demand for natural gas liquids (NGLs) and petrochemicals. However, execution risks persist. The AEF iso-octane plant outage in early 2025, for instance, will reduce Marketing segment margins by ~$40 million, testing management’s ability to navigate operational hiccups.

Risk Factors to Consider

While Keyera’s infrastructure-heavy model mitigates commodity price risks, other concerns linger:
1. Valuation: At a P/E of 21.97, Keyera trades at a premium to peers. Investors must assess whether its growth targets justify this multiple.
2. Debt Levels: Though net debt/EBITDA is a manageable 2.0x (below its 2.5–3.0x target), further debt-funded expansion could strain liquidity.
3. Regulatory and Environmental Risks: As Canada tightens emissions standards, Keyera’s carbon-intensive operations face scrutiny.
4. Market Dependency: The company’s fortunes remain tied to North American energy demand, which could weaken if global economic growth slows.

Conclusion: A Steady Bet for Patient Investors

Keyera deserves a spot on your watchlist for three reasons:
1. Structural Growth: Its partnership with AltaGas and projects like REEF and KFS Frac III position it to capture rising LPG exports and petrochemical demand.
2. Dividend Reliability: A 5.2% dividend yield (as of Q1 2025) and a payout ratio of 71% suggest sustainability, even in weaker quarters.
3. Balance Sheet Strength: With $771 million in distributable cash flow in 2024 and insider ownership of 0.4% (via executives holding $41 million in stock), governance aligns with shareholder interests.

However, investors must remain cautious. Keyera’s flat revenue growth (noted by analysts) and reliance on project execution mean that setbacks could dent multiples. Monitor Q1 2025 earnings closely and track progress on the KFS Frac III sanctioning, which requires customer commitments by mid-2025.

In summary, Keyera offers a defensive, cash-flow-driven investment in an otherwise volatile energy sector—but its premium valuation demands patience and a long-term horizon.