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Analyzing Williams Partners’ Geismar Olefins Plant Sale

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Part 3
Analyzing Williams Partners’ Geismar Olefins Plant Sale PART 3 OF 4

What Does Williams Partners’ Current Valuation Indicate?

Williams Partners’ price-to-distributable cash flow

Williams Partners (WPZ) is currently trading at a price-to-DCF (distributable cash flow) of 13.4x, which is above the historical average of 7.0x. The sudden spike in WPZ’s price-to-DCF ratio is due to the dilution following the issuance of 289.0 million common shares to Williams Companies (WMB) under the financial repositioning plan.

What Does Williams Partners’ Current Valuation Indicate?

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Williams Partners’ EV-to-adjusted-EBITDA multiple

Williams Partners’ EV-to-adjusted-EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) ratio using a trailing 12-month adjusted EBITDA is 14.2x. The current EV-to-EBITDA ratio is slightly above the last ten-quarter average of 13.9x.

The forward EV-to-EBITDA multiple, which is based on the next 12-month EBITDA estimate, is 13.5x. WPZ’s forward EV-to-EBITDA multiple is above the peer median of 10.7x. Energy Transfer Partners (ETP) and EnLink Midstream Partners (ENLK) have lower valuation multiples than WPZ.

Williams Partners’ forward distribution yield

Williams Partners is currently trading at a forward distribution yield of 6.1%. The ratio is below the historical five-year average. The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per share by its market price per share.

WPZ’s higher valuation relative to its own historical valuation and its peers might be supported by its significant natural gas–focused expansion opportunities, low commodity price exposure, improved leverage position, and strong presence in the prolific Marcellus and Utica shale plays. At the same time, the current valuation might be high considering its declining gathering volumes in some regions, recent distribution cuts, and low distribution coverage.

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