Buckeye Partners’ Distribution Coverage Fell in 2Q17



VTTI acquisition drove BPL’s 2Q17 EBITDA

Buckeye Partners (BPL) reported adjusted EBITDA of $269.2 million in 2Q17 compared to $256.6 million in 2Q16, a YoY increase of 4.9%. However, BPL missed its EBITDA estimate by 2.7%.

The YoY growth in the partnership’s 2Q17 EBITDA was mainly driven by the acquisition of the 50% equity interest in VTTI. The growth was slightly offset by the weak performance at its Global Marine Terminals segment due to lower capacity utilization resulting from the loss of a long-term customer. According to Clark Smith, BPL’s CEO, “Our commercial team continues to make progress on re-contracting open storage capacity within the segment.”


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BPL’s 2Q17 distributable cash flow fell to $170.4 million in 2Q17 compared to $183.1 million in 2Q16, a YoY decline of 6.9%. This drove BPL’s distribution coverage below one to 0.95x. A distribution coverage below one indicates that a partnership is unable to cover its distribution from internally generated cash flows.

BPL continued to improve distribution in 2Q17

BPL continued to grow its distribution at a fixed rate of $0.01 per unit in the recent quarter. It declared a distribution per unit of $1.27 for 2Q17, which represents a 4.1% increase compared to the corresponding quarter last year. The decline in distribution coverage below one in the recent quarter adds to the uncertainty surrounding the partnership’s future distribution growth.

Analyst recommendations

56.3% of analysts rate Buckeye Partners a “hold,” and the remaining 43.7% rate it a “buy” as of August 7. Stifel Nicolaus upgraded BPL to “buy” in May 2017. Overall, the partnership has seen four rating updates since the beginning of this year including one upgrade, one downgrade, and two new coverages. BPL’s average target price of $72.9 implies a 21.5% return from its current price levels. BPL’s short-term outlook looks weak considering its declining distribution coverage and the expiration of an important storage contract.


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