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.
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.