Just providing another summary of a SA article re: BWP. This author uber unimpressed. I'll admit that I'm beyond waffling. Outside of this positive article on which I keep commenting, very few are pro-BWP. That either makes for a perfect "greedy/scared" set-up or it is time to fold.
- As part of an effort to investigate a potential dirty value opportunity I will analyze Boardwalk's recent troubles, its future growth prospects and whether or not there is anything here for long-term investors to salvage.
- On the surface the small declines in revenues and DCF make the size of the distribution cut seem excessive, but there is good reason why management took such drastic action.
- Midstream pipeline partnerships such as Boardwalk are typically very stable and reliable sources of distributions because of long-term (typically 10 year) contracts that reduce exposure to commodity risk. This is because the partnership's contract states a guaranteed volume and payment for use of its pipes to transport oil and gas. The only risk is if commodity prices have greatly changed for the worse when the contract is up for renewal and renegotiation.
- The important thing to understand about Boardwalk is that it is incredibly non-diversified. 95% of its income comes from the transport and storage of natural gas and natural gas liquids.
- They initially made very lucrative contracts during the early years of the fracking boom when natural gas prices dropped in some areas and not in others. This resulted in lucrative decade long contracts that ensured solid cash flow and high distributions. Later, the nationwide fracking boom drove natural gas prices to historical lows and demand for storage was very high.
- The next few years look bleak for Boardwalk for several reasons.
- 1. Wrong assets in the wrong places and
- 2. Highly levered balance sheet
- Currently Boardwalk's debt is $3.3 billion and its Debt/EBITDA is 4.6x. Anything above 4.5 is alarmingly high and management is both guiding for lower EBITDA in 2014 and has stated a long term goal of debt/EBITDA of 4.
- Given that the entire reason for owning an MLP is for high yield and consistent distribution growth, the current state of Boardwalk Pipelines Partners is nothing less than disastrous.
- With its yield slashed and its prospects of future distribution increases all but eliminated, in the short-medium term the investment thesis for Boardwalk Pipeline Partners has completely collapsed.
- Meanwhile, Boardwalk's competitors Magellan Midstream, Kinder Morgan and Plains All American continue to execute well, cover distributions and grow consistently.
- I agree with you on BWP, it is a stay away. EPD, PAA, MMP, and KMP, KMI are much better and safer.
- BWP sure has a rough road ahead. I actually think more downside is likely, especially if the bluegrass pipeline is nixed.
- Has the company really lost 50% of its true value, or is it a case of ignoring the pipes and only valuing the immediate cash? I am a long term owner of L and a short term (post collapse) owner of BWP.
- But for BWP holders there is no real premium from here so it would be far better for you to buy into a high quality GP of an MLP for that same 3% yield but lever into higher growth or buy a high growth rate MLP that will have a higher yield than BWP.
- As for BWP, I don't see why anyone would buy BWP here when EPB trades at the same EV/EBITDA valuation and has superior assets, better fundamentals, a much stronger balance sheet, superior management, a fully-covered dividend of 8.8% this is projected (by a management team with excellent credibility/track record) to be secure and some excellent projects in the pipeline with a likely return to distribution growth in a couple of years. No-brainer.