We added Short Boardwalk Pipeline Partners (BWP) to our Best Ideas list on 12/2/2013 at $26.34/unit. After cutting its distribution by 80% in February 2014, BWP’s unit price collapsed (down ~50%), and we feel that our short thesis is largely played out. With this note we are removing Short BWP from our Best Ideas list.
In our view, BWP neither is fixed nor cheap – thus we simply move to the sidelines instead of turning outright bullish.
At 18.2x 2014e EV/EBIT and 10.3x 2014e EV/EBITDA, it is certainly screens as inexpensive relative to other pipeline MLPs, but not absolutely. BWP’s re-contracting risk is significant for several years, particularly in 2018 and 2019. 2014 could be peak earnings for the core businesses, though the out years are naturally difficult to predict. We also remain concerned with the Company’s high leverage, which looks to be stuck around 5.0x EBITDA; BWP may need to issue equity in 2015 to strengthen the balance sheet.
But from a risk/reward perspective, the setup is no longer asymmetrical to the downside. What’s already happened (and is priced-in to some degree): narrowed basis differentials crushed BWP’s transportation business; narrowed calendar spreads crushed BWP’s storage and PAL businesses; its G&P ventures (Marcellus and Eagle Ford) have disappointed; it cut the distribution 80%; it guided 2014 below the Street; consensus has soured on Bluegrass’s prospects; and it got kicked out of the Alerian Index. We’re concerned that the next catalyst/announcement from BWP could be one to break the losing streak – repurpose an under-utilized asset? LNG export investment or deal? A Loews tender offer?
Staying short here is not compelling, in our view; our time and effort will be better spent looking for the next BWP.