What Boardwalk Pipeline’s Valuation Indicates ahead of 3Q Results


Dec. 4 2020, Updated 10:53 a.m. ET

Boardwalk Pipeline’s market performance

Boardwalk Pipeline Partners (BWP) has risen 30.3% since the beginning of 2016. At the same time, the Alerian MLP ETF (AMLP), which is made up of 24 midstream energy MLPs, has risen 4.0%. BWP’s outperformance relative to AMLP could be attributed to its low crude oil exposure and involvement in fee-based natural gas activities such as natural gas transportation and storage. Plus, the partnership benefits from a rise in natural gas demand from power utilities.

By comparison, Enable Midstream Partners (ENBL) and Williams Partners (WPZ) have returned 71.5% and 32.9%, respectively, in 2016.

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Boardwalk Pipeline’s valuation

Boardwalk Pipeline Partners is currently trading at a price-to-distributable cash flow of 8.9x. The partnership is trading slightly above the ten-quarter historical average of 8.5x.

Boardwalk Pipeline’s EV-to-adjusted-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio using a trailing 12-month adjusted EBITDA is 10.2x. The current EV-to-EBITDA is just below the last ten quarters average of 10.5x. Moreover, BWP is currently trading below the industry median EV-to-adjusted-EBITDA of 13.0x.

BWP’s forward EV-to-EBITDA multiple, which is based on the next 12-month EBITDA estimate, is 9.5x. This might indicate expectations of an increase in the partnership’s EBITDA in the coming quarters.

However, the EV-to-EBITDA ratio can be misleading in understanding the unit valuation of limited partner units, because the entire EBITDA in the EV-to-EBITDA ratio calculation may not be available to limited partners. Boardwalk Pipeline Partners has IDRs (incentive distribution rights) in its structure. IDRs mean that its general partner gets a higher share of incremental cash flows.


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