TC PipeLines L.P.
) announced weaker-than-expected second-quarter 2012 results, hurt
by low equity income from Great Lakes along with higher operating
TC PIPELINES (TCP): Free Stock Analysis Report
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The Calgary, Alberta-based master limited partnership (MLP) - with
stakes in over 5,550 miles of federally regulated U.S. interstate
natural gas pipelines that cater to domestic and Eastern Canadian
markets - reported earnings per unit (EPU) of 60 cents, below the
Zacks Consensus Estimate of 66 cents and the year-ago profit of 69
Distribution & Cash Flows
TC PipeLines announced its second quarter 2012 cash distribution of
78 cents per unit ($3.12 per unit annualized), representing a 1.3%
increase over the year-earlier quarter as well as preceding
This is the 13th consecutive annual hike announced by the company.
It will be paid on August 14 to unit holders of record as of August
Total partnership cash flows during the quarter were up 8.3% from
the year-earlier level at $52.0 million, mainly on the receipt of
cash distributions from TC PipeLines' interests in the Gas
Transmission Northwest LLC (GTN) and Bison Pipeline LLC - that were
purchased from the parent
) in May last year. These were somewhat negated by the decrease in
cash distributions from Great Lakes.
TC PipeLines paid distributions of $42.0 million during the
quarter, up 20% from the year-earlier level, driven by an increase
in the number of common units outstanding and a rise in the
Pipeline Systems Performance
The partnership's equity income from the Great Lakes decreased 53%
year over year to $8 million in the quarter, reflecting less
transmission revenues stemming from lower short-term rates.
Northern Border Pipeline:
Equity income from Northern Border Pipeline remained year over year
flat at $16.0 million.
GTN and Bison:
TC PipeLines' equity income from the GTN and Bison pipeline systems
came in at $4.0 million and $3.0 million, respectively.
As of June 30, 2012, TC PipeLines had $321.0 million outstanding on
the $500.0 million revolver portion of its senior credit facility.
The partnership had long-term debt (including current portion) of
$700 million, representing debt-to-capitalization ratio of 34.6%.
During the quarter, TC PipeLines incurred maintenance capital
expenditure of $5.0 million and expended $1.0 million on growth
Rating & Recommendation
We are maintaining our long-term Neutral recommendation on TC
PipeLines units, as we see limited near-term price upside.
We also like TC PipeLines' steady cash-flow generating pipeline
assets, which provide stability and financial capacity to deliver
cash distributions in a disciplined manner. However, we remain
concerned as TC PipeLines' value will likely remain clouded, as the
partnership struggles with weak natural gas fundamentals.
Additionally, we remain wary of cost overruns on expansion projects
(which lead to lower returns).
TC PipeLines units currently retain a Zacks #3 Rank, which implies
a Hold rating for a period of one to three months.