TC PipeLines Cut to Neutral - Analyst Blog
10 Maggio 2011 - 8:00PM
Zacks
We have downgraded pipeline operator TC PipeLines
L.P. (TCLP) units to Neutral from Outperform purely on
valuation grounds, as we see limited near-term price upside.
Formed in 1998, Calgary, Alberta-based TC PipeLines is a master
limited partnership (“MLP”), with interests in four pipeline
systems: the Northern Border Pipeline Company (NBPL), the Tuscarora
Gas Transmission Company, Great Lakes Gas Transmission, L.P and the
North Baja Pipeline, LLC.
Recently, the partnership entered into an agreement to acquire a
25% ownership interest in two pipeline systems from parent
TransCanada Corp. (TRP) for $605 million.
With its investments in low-risk energy infrastructure assets,
the partnership has been able to historically provide stable cash
distributions. Over the last few years, TC PipeLines has
consolidated its business, achieved through a combination of
organic efforts and accretive acquisitions.
We believe future growth prospects for the partnership have
improved considerably following the North Baja Pipeline acquisition
and the subsequent capping of general partner incentive
distribution rights (“IDRs”) at 25%. In particular, the 25% IDR cap
(which only a handful of MLPs have adopted until now) allows
limited partners to benefit from the partnership’s growth.
We also like TC PipeLines’ steady cash-flow generating pipeline
assets, which provide the stability and financial capacity to
deliver cash distributions in a disciplined manner.
However, at current valuations, we have a difficult time
justifying sufficient potential return to support an Outperform
rating. We expect TC PipeLines’ valuation to remain subdued, as the
partnership struggles with weak natural gas fundamentals.
Additionally, we believe that while distribution is stable, growth
is likely to be a challenge for the partnership.
Consequently, we see the partnership performing in line with the
broader market. Our new long-term Neutral recommendation is
supported by a Zacks #3 Rank (short-term Hold rating).
TC PIPELINES (TCLP): Free Stock Analysis Report
TRANSCDA CORP (TRP): Free Stock Analysis Report
Zacks Investment Research
Grafico Azioni TC Pipelines, LP - Common Units Representing Limited Partnership Interests (MM) (NASDAQ:TCLP)
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Da Mag 2024 a Giu 2024
Grafico Azioni TC Pipelines, LP - Common Units Representing Limited Partnership Interests (MM) (NASDAQ:TCLP)
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Da Giu 2023 a Giu 2024