Low-carbon Fuel Momentum Will Energize Western Canadian Markets

Key Takeaways

• Expansion into renewables and a diversified customer base are expected to drive margin growth and stabilize long-term earnings and cash flow.
  
• Asset sales and debt reduction are improving liquidity and positioning the company for future investments and operational efficiency.
  
• Operational challenges, asset sales dependence, and market pressures are straining earnings stability, liquidity, and growth prospects, while short contract terms add revenue volatility risk.

Catalysts

Tidewater Midstream and Infrastructure Ltd.

• The strengthening policy environment for low-carbon, domestically produced fuels in Western Canada-evidenced by BC's Low Carbon Fuels Act amendment mandating higher renewable diesel blend rates and in-country production-positions Tidewater to capture sustained and growing demand for renewable diesel and SAF, supporting higher long-term revenue and margin stability.
  
• Ongoing diversification of customers and commercialization strategy-moving from a single major offtaker to a broader, more industrially-rooted customer base for both conventional and renewable products-is expected to de-risk volumes, improve pricing power, and underpin more consistent net earnings and free cash flow.
  
• Expansion into renewables through the successful ramp-up of the HDRD facility and future projects like the SAF plant, combined with government credit programs, increases exposure to higher-margin, lower-volatility revenue streams, reinforcing margin expansion and long-term EBITDA growth potential.
  
• Strategic asset sales and the recycling of proceeds to reduce debt are providing liquidity and lowering interest expenses, supporting net income upside and enhancing Tidewater's capacity for future investment as capital is freed up from non-core assets.
  
• Regional industrial growth in Alberta and Western Canada, along with improved refined product offtake agreements and feedstock optimization, is expected to drive higher utilization rates and throughput across core midstream and refining assets, positively impacting both revenue and operating margins.

Tidewater Midstream and Infrastructure Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Tidewater Midstream and Infrastructure's revenue will grow by 11.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.7% today to 5.4% in 3 years time.
• Analysts expect earnings to reach CA$103.5 million (and earnings per share of CA$2.43) by about June 2029, up from -CA$107.5 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 4.7x on those 2029 earnings, up from -3.5x today. This future PE is lower than the current PE for the CA Oil and Gas industry at 25.5x.
• Analysts expect the number of shares outstanding to grow by 1.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.33%, as per the Simply Wall St company report.

Risks

• The Prince George Refinery experienced a 17% year-over-year decrease in throughput, attributed to operational and feedstock issues, and continues to face margin pressure from an oversupplied Western Canadian diesel market and high U.S. renewable diesel imports, posing ongoing risks to revenue and net margin recovery.
  
• Consolidated net loss at the Midstream entity widened significantly-from $4.7 million in Q2 2024 to $16.3 million in Q2 2025-while adjusted EBITDA dropped from $45.3 million to $16 million, highlighting sustained earnings volatility and limited ability to offset margin compression through cost reductions or operational synergies.
  
• The shift to in-house refined product marketing following the Synovus offtake expiry increased customer diversification, but contract lengths for conventional products remain relatively short (1–2 years), exposing Tidewater to ongoing volume volatility and re-pricing risk, potentially impacting revenue stability and cash flows.
  
• Asset concentration and persistent need for noncore asset sales to maintain liquidity suggest underlying pressure on the balance sheet; the target of $100 million in asset sales (with only 40% achieved mid-year) exposes Tidewater to risk if market conditions or buyer interest deteriorate, which may constrain investment in growth projects and undermine net earnings.
  
• Operational incidents (e.g., the HDRD facility fire) and scheduled maintenance outages at key assets continue to impact utilization rates and throughput, reflecting the risk that further disruptions or insufficient capital spending on asset integrity could drive higher costs, depress EBITDA, and limit long-term asset value.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$17.55 for Tidewater Midstream and Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be CA$1.9 billion, earnings will come to CA$103.5 million, and it would be trading on a PE ratio of 4.7x, assuming you use a discount rate of 7.3%.
• Given the current share price of CA$17.16, the analyst price target of CA$17.55 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.