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Crestwood Equity Partners: Organic Growth Plus Greater Than 10% Distribution Yield

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The Quarter:

Crestwood Equity Partners (NYSE:CEQP) reported a typically patient 4th this greeting (February 21st). EBITDA came successful astatine $200.3mm for nan quarter, beautiful overmuch correct connected apical of statement estimates. Comparisons versus past year's Q4 of $149.1mm are obfuscated by nan ample number of acquisitions and divestitures nan institution completed during nan year.

Overall, nary surprises jumped retired astatine maine from immoderate of nan geographies. Gathering and Processing was 70% of nan company's EBITDA. The Williston Basin remains nan largest EBITDA generator. That will beryllium wherever nan institution expects to walk astir 50% of its maturation superior expenditures of $135-155mm. The bulk of nan remainder will beryllium spent successful nan Delaware basin, wherever Sendero's assets were centered. This expenditure will spell to helping work 260 caller wells successful 2023, a 15% increase. The PRB will adhd 10-20 caller wells mostly from Continental Resources.

For anyone who has followed nan institution for respective years, this headdress ex fund is mini compared to erstwhile years.

Asset Sale

The institution announced nan waste of Tres Palacios Gas Storage Assets successful South Texas (between Galveston and Corpus Christi). The institution will person astir $168 cardinal for its 50% liking successful nan retention assets and usage each of it to salary down its revolving in installments facility, whose equilibrium stood astatine $525 cardinal pro forma for nan $600 cardinal enslaved rumor nan institution completed successful January. Tres Palacios should beryllium nan past awesome non-core plus nan institution has near and its waste will complete a reasonably awesome plus repositioning nan institution has conducted complete nan past 2 years, including exiting nan Marcellus and Haynesville and bulking up successful nan Williston and Delaware Basins.

Guidance

The institution issued nan pursuing guidance for 2023, taking into relationship nan waste of Tres Palacios:

  • EBITDA $780-860 million.
  • Growth Capital Expenditure of $135-155 million
  • Maintenance Capital Expenditure of $25-30 million
  • DCF disposable to communal portion holders of $430-510 million
  • Free rate travel aft distributions of $10-90 million
  • Year-end leverage ratio of 3.7x to 4.1x
  • Full twelvemonth sum of unchanged $2.62 communal distribution of 1.6x to 1.8x

I deliberation immoderate group will beryllium disappointed that nan institution does not expect to summation nan distribution this year. Frankly, I don't spot why. At >10% distribution yield, nan institution is not getting rewarded for its existent distribution. Why would a higher 1 matter more?

Free rate travel aft each headdress ex and distributions (midpoint of $50 million) will beryllium utilized to trim leverage, astir apt via nan revolver. The institution continues to person a leverage target astir 3.5x. It should decorativeness nan twelvemonth adjacent to that arsenic nan institution almost ever guides to wherever it tin meet aliases hit nan precocious end.

Risks

Given that nan company's awesome counterparties person vastly improved equilibrium sheets (as does Crestwood) and location is patient drilling activity, astir of nan consequence successful this sanction is marketplace volatility. Cash flows person been beautiful predictable extracurricular of past year's upwind impacted Q2, which had a mini effect for nan year. Unless that repeats, I'd expect nan institution to meet aliases transcend its guidance. The units will do what they do but nan distributions springiness you complete 10% of cover.

Conclusion

At a 10.22% well-covered distribution output and little than 9x nan midpoint of EBITDA guidance, I proceed to spot CEQP arsenic a really easy spot to put capital. MLPs for illustration CEQP, Enterprise Products (EPD) and Energy Transfer (ET) person held up good arsenic power prices person travel off, but they didn't rally difficult pinch power prices either. Perhaps nan investor guidelines yet sees them arsenic places to get output and immoderate maturation sloppy of economical aliases commodity conditions.

This article was written by

CashFlow Hunter floor plan picture

Cash travel focused investor comfortable crossed nan superior structure. Prefer to find undervalued dependable rate travel generators connected nan agelong broadside and declining rate travel situations pinch unsustainable equilibrium sheets connected nan short side.

Disclosure: I/we person a beneficial agelong position successful nan shares of CEQP either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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