Earning season for the midstream sector is well underway and results seem very encouraging. With over 20 of the most relevant midstream companies having reported, numbers are coming in overwhelmingly positive. Of the infrastructure names under JP Morgan’s coverage, so far 48% produced EBITDA over 2% above the Street median and 52% reported in line with expectations.
A few names that are regarded as good bellwethers for the sector and that reported a very strong quarter include best-in-class EPD, PAA and OKE. KMI also reported a strong Q1 and a significant hike in their dividend but lowered slightly its EBTDA guidance for the rest of 2019.
On the subject of dividends and distributions, increases on a quarterly basis are continuing and more importantly such increments do not seem to occur at the expense of an eroding coverage ratio which remains high overall. Some examples: MPLX grew its distribution over the previous quarter by 1.54%, CQP by 1.69%, SHLX by 3.75%, EQM by 1.33%, PSXP by 3.68%, EPD by 0.57%. We then had the double digits catch-up increases by KMI at 25% and PAA at 20%.
As we write this update, major newswires report about the acquisition of BPL (one of the oldest MLPs on record) by private equity fund IFM Investors. IFM has agreed to purchase 100% of BPL for $6.5 billion in cash, a 27.5% premium over BPL’s closing price yesterday. Assuming the transaction closes on these terms, the premium paid is a validation of the valuation gap that public midstream assets have been suffering for quite sometime. We have often referred to private transactions were midstream assets were purchased at much higher multiples that what witnessed on the exchange. Hopefully, the BPL transaction will be a wake up call for investors to take a second look at opportunities in the midstream space.