Rising Renewable Demand And Energy Transition Will Secure Market Position

Key Takeaways

• Tight renewable diesel supply, premium pricing, and regulatory credits position the company for accelerated margin and earnings growth beyond analyst expectations.
  
• Integration, cost synergies, and asset expansion underpin long-term cash flow stability, higher margins, and a defensible market niche amid global energy transition.
  
• Tidewater faces structural challenges from decarbonization, regional concentration, financial constraints, and regulatory pressures that threaten its revenue stability, flexibility, and long-term growth potential.

Catalysts

Tidewater Midstream and Infrastructure Ltd.

• Analysts broadly agree that the BC renewable diesel mandate will support revenue and margins, but they may understate the upside-tightening global supply, rising LCFS and CFR credit prices, and a majority of production already locked-in at premium import parity pricing indicate a scenario where margins expand far faster than consensus expects, rapidly accelerating earnings growth.
  
• The analyst consensus notes increased Canadian renewable diesel demand and less U.S. competition lifting sales and prices, yet this fails to fully account for the flywheel effect of Tidewater's growing role as a primary clean fuel supplier in Western Canada, which could cement long-term contract volumes at higher price floors, structurally increasing cash flow stability and supporting multiple expansion.
  
• Ongoing integration of the Pembina Western Pipeline and operational optimization across Tidewater's platform will unlock significant cost synergies and scale-driven efficiencies, boosting EBITDA margins and strengthening free cash flow as pipeline and refining throughput increases over the next several years.
  
• Expansion in customer diversification and in-house marketing capabilities positions Tidewater to further capitalize on long-term global energy demand growth, capturing higher netbacks and securing a defensible niche across both conventional and renewable refined products, which should drive above-trend revenue and margin growth.
  
• The company's portfolio of high-quality, strategically located assets-with options for low-carbon projects, value-add data center partnerships, and potential for substantial LNG and hydrogen-related throughput-positions it to benefit from accelerating global energy transition and digital infrastructure trends, supporting sustained long-term earnings and asset valuation uplift.

Tidewater Midstream and Infrastructure Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Tidewater Midstream and Infrastructure compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Tidewater Midstream and Infrastructure's revenue will grow by 16.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -4.2% today to 2.4% in 3 years time.
• The bullish analysts expect earnings to reach CA$52.5 million (and earnings per share of CA$-0.07) by about August 2028, up from CA$-58.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 4.8x on those 2028 earnings, up from -1.7x today. This future PE is lower than the current PE for the CA Oil and Gas industry at 12.2x.
• Analysts expect the number of shares outstanding to decline by 5.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Tidewater Midstream and Infrastructure Future Earnings Per Share Growth

Risks

• The company faces long-term secular risks from global energy transition policies and decarbonization efforts, which threaten the future demand for fossil fuels and may result in stranded asset risks for Tidewater's midstream infrastructure, putting long-term downward pressure on revenues and asset values.
  
• High financial leverage and ongoing debt servicing requirements limit Tidewater's reinvestment ability and strategic flexibility, especially in downturns, which could further weigh on net margins and increase the possibility of solvency risk during periods of lower profitability.
  
• The Prince George Refinery has experienced a significant 17 percent year-over-year decrease in throughput and continues to face reduced margins due to regional diesel oversupply, largely influenced by high levels of U.S. renewable diesel imports, directly threatening future earnings and revenue stability.
  
• Tidewater's operations and revenues are heavily concentrated in Western Canada, making the business vulnerable to localized economic weakness, regulatory tightening, and market saturation, which may limit opportunities for market diversification and sustainable growth in revenue.
  
• Increased pressure from ESG investors, along with tightening regulatory environments and declining North American NGL demand as downstream users move towards electrification and low-carbon alternatives, could constrain financing options and increase operating costs, ultimately reducing free cash flow and shrinking the company's earnings base.

Valuation

• The assumed bullish price target for Tidewater Midstream and Infrastructure is CA$0.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tidewater Midstream and Infrastructure's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$0.5, and the most bearish reporting a price target of just CA$0.1.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$2.2 billion, earnings will come to CA$52.5 million, and it would be trading on a PE ratio of 4.8x, assuming you use a discount rate of 11.0%.
  
• Given the current share price of CA$0.23, the bullish analyst price target of CA$0.5 is 54.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.