Referenced Stocks

Analyst Actions: Breitburn Energy Partners Upgraded, Target Raised $1 At Credit Suisse

By Midnight Trader,  December 13, 2012, 01:37:11 PM EDT

Accretive Acquisitions Support Distribution Sustainability; UPGRADING to NEUTRAL (from Underperform); Raising TP to $19 (from $18)

Upgrading to Neutral (from Underperform): In our view, BBEP's execution of ~$600mm of accretive acquisitions in 2012 has improved the sustainability of the company's distribution longer term. That said, we do remain concerned about the sustainability of distribution growth owing to the impact of lower commodity and hedge prices. With units currently yielding 10.2% (slightly above the upstream MLP peer median), we believe this risk is fairly reflected in the market. Our $19 target prices (from $18) offers a 15.0% total return potential over the next 12 months.

Accretive Acquisitions Support Distribution Sustainability: Thus far in 4Q12, BBEP has announced ~$284mm of acquisitions. Combined, we estimate these acquisitions are ~$0.10/unit (~5%) accretive to DCF. We now forecast BBEP to maintain a 1.07x and 1.10x (vs. 1.06x and 1.06x) distribution coverage ratio in 2013 & 2014, respectively. This higher margin of safety should improve investors' level of comfort in this volatile commodity price environment.

Potential Equity Issuance in 1Q13: Pro-forma for the recent acquisitions, we estimate BBEP will be ~3.5x levered. We estimate BBEP would need to raise ~$150mm to reduce its leverage ratio to 3.0x.

Raising TP to $19 (from $18): Our $19 price target for BBEP is based on a three-stage distribution discount model ( DDM ). Our assumptions include a discount rate of 9.0%, distribution CAGR of -2.1% over the first five years, 0.0% over the following five years and a terminal growth rate of 0.0%.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.


This article appears in: Investing, Commodities

Referenced Stocks: DDM



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