TC Energy’s liquids pipeline spin-off, South Bow Corp, edged lower on its first day of trading on the Toronto Stock Exchange on Wednesday, tracking a broader weakness in Canadian energy stocks.
South Bow was spun out of Calgary-based TC to help TC reduce its debt load and focus on moving natural gas. Shareholders received one South Bow common share for every five TC common shares held.
The stock was last down 0.2% at C$29.01 on the Toronto Stock Exchange.
South Bow’s main asset is the 622,000 barrel-per-day Keystone pipeline, which ships Canadian crude from Alberta to the U.S. Midwest and Gulf Coast. In total the company operates 4,900 km (3,045 miles) of oil pipeline infrastructure and ships about 20% of Canadian crude exports to the U.S.
South Bow has made clear it will focus on maximizing operations on its existing assets and returning cash to shareholders, rather than becoming a growth engine, said Martin Cobb, senior vice president of equities at Lorne Steinberg Wealth Management, which holds shares in South Bow.
“They have set out their stall as a cash flow machine,” Cobb said.
Canada is the world’s fourth-largest crude producer and output from northern Alberta’s oil sands has hit record highs over the past year, driven partly by the start-up of the Trans Mountain expansion project which competes with Keystone for customers.
Analysts said South Bow’s higher-than-average dividend yield would help offset investor concerns about its substantial debt load, while the highly contracted Keystone pipeline is seen as a stable source of revenue.
“The high level of contracts and competitive position of the Keystone pipeline supports a healthy valuation, but the less diversified cash flows, lower growth and higher leverage will likely weigh on valuation relative to peers,” BMO Capital Markets analyst Ben Pham said in a research note.
(Reporting by Nia Williams in British Columbia; Editing by Lisa Shumaker)