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Plains All American Tanks on Planned Distribution Cut, Lower Guidance from Barron's Plains All American Tanks on Planned Distribution Cut, Lower GuidanceStifel analyst Selman Akyol expects Plains' annual distribution to be cut to $1.80 from $2.20.By Amey Stone Investors in master limited partnerships don't like distribution cuts. Case in point: With profits evaporating in its "supply and logistics" business, Plains All American Pipeline (PAA) lowered its forward guidance and indicated it would reduce its distribution. The shares were down about $4, or 16%, to $21.20 as of 1 p.m. ET Tuesday. Its general partner, Plains GP Holdings (PAGP), was down a similar amount. While the company didn't cut its payout, it indicated it is changing the way it calculates distributions since one division is drastically underperforming. Stifel analyst Selman Akyol has changed his model to reflect a $1.80 annual distribution, down from $2.20, an 18% cut. the shares currently yield over 10%, which would be expected to drop to 8.4% if the cut is as big as Akyol expects.He writes: Management provided a scenario where the distribution would be reset to $1.80, an 18% reduction, from $2.20 which would imply 1.10x coverage based on management’s 2018 fee-based DCF guidance. In addition, PAA is also evaluating the correct coverage ratio that would allow any contribution from S&L to provide increased coverage to reinvest in the business. In our model we reduced distributions to $0.45 per quarter or $1.80 annualized. He lowered his price target to $26 from $30 and is keeping his hold rating. He writes: While Transportation and Facilities are operating within our expectations, S&L is off the rails. We commend management for taking decisive actions but until a sustainable business model is proven, we remain on the sidelines. The problems are all in Plains' supply and logistics business, which is tied to crude oil prices and has gotten more competitive. SunTrust Robinson Humphrey analyst Tristan Richardson estimated the division would lose $10 million last quarter, but instead it lost $28 million. The Transportation and Facilities divisions grew. He thinks the lowered guidance indicates little improvement in the third quarter or fiscal year. |
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