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Pacific Energy (PEA) - Waiting On Pipeline Conversion

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PEA’s FY17 result of $40m EBITDA was in-line with guidance and forecasts. Growth into FY18 is underpinned by current contracts in hand, and the Company has given guidance for FY18 EBITDA of $43-44m (representing ~9% growth). However, longer-term growth is less certain with intensifying competition, a broader shift to gas (for which PEA has less competitive advantage), and a lack of progress in Africa. We peel back long-term growth forecasts pending evidence of pipeline conversion. Until then, and given our reduced valuation of $0.70 per share, we downgrade to a HOLD (prior BUY on $0.80 valuation).

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