The metric that matters for MLP's is distributable cash flow. It is roughly equal to earnings + depreciation - maintenance Capex. In some cases working capital changes are added, in other cases not. I would tend to omit them, because they are seasonal and should even out over time.
EBITDA is a decent way to value pipelines across different incorporations (C-Tax, MLP etc). You can calculate distributable cash flow by subtracting interest expense from EBITDA, assuming that maintenance capex is very small.
The distribution is not all return of capital. Many MLP's and in particular BWP have actual earnings. Also it is important to that return of capital is an accounting number, resulting from depreciation but that depreciation does not match the economic value of the pipeline. In fact, many pipelines will actually appreciate in value because of rate increases and new additions add to their economic life. I think this is really the key part to understand about the pipeline business.
As far as BWP is concerned, i consider the potential for distribution growth to be limited. Their main asset used to be a major pipeline that moved gas from Texas to the Northeast. This pipeline is in less demand, because a lot of gas is produced in the Marcellus shale, very close to the consumption centers there. BWP also botched expansion projects in 2008 with cost overruns to the tune of 800M$ back then, that forced Loews to support them. Then they overpaid for NG storage assets, that are also in less demand, because the NG glut makes storing gas for winter use less profitable. This is. long string of blunders that have stalled BWP distribution growth, compared to better managed MLP's like OKS with comparable assets.
On the other hand, the Loews GP will most likely provide financing backstop when needed, which makes the distribution safer, so you can almost regard it as a bond substitute,imo. |
