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Boardwalk Pipeline Partners, LP Message Board

  • facts_are_facts_are facts_are_facts_are Feb 10, 2014 2:14 PM Flag

    $12.85 would be my first buy

    If it gets there.

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    • In the quarter, revenue fell by 4% to $313 million while full year revenue of $1.206 billion was 2% higher. As a consequence, net income fell by 78% in the quarter to $19.5 million. For the full year, net income fell by 17% to $306 million. For MLPs, distributable cash flow ("DCF") is the key metric as that determines what the company can pay out. Quarterly DCF fell 3% to $139 million, though full year DCF was up 12% to $559 million. Basically, BWP's performance has appreciably worsened in the fourth quarter.

      Unfortunately, this weakness will continue going forward. Pipelines operate on multi-year contracts, and when they expire, there is a new bidding process. BWP had some contracts expire this year, and the new deals are not as favorable. Weak contract renewals cut revenue by $13 million, and this weakness will persist for several years. Further with more expirations coming, transportation revenue will remain under pressure in 2014 and 2015. In fact, the company expects weak renewals to cut 2014 revenue by an annualized $40 million. Going forward, BWP's network will generate less revenue than it has in the past.

      Moreover, $56 million of DCF came from the sale of stored gas, which will not happen this year. This item alone accounted for 10% of 2013 DCF. With backwardated natural gas prices, BWP's parking, lending, and storage results will be weaker going forward. In total, BWP expects distributable cash flow to be roughly $400 million, which would be down 28% year over year. At the end of the last quarter, there were 243 million units outstanding, so it will have a coverage ratio of roughly 4x.

      Now, considering the fact most MLPs target a coverage ratio of 1.0-1.5x times, this coverage ratio may seem surprising. In fact, it would suggest BWP could cover a $0.40 payout. Why then did BWP cut its payout so massively? First, DCF will continue to decline in 2015 and probably 2016 due to weak renewals and increased maintenance requirements. The worst is yet to come as

 
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