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EQM Midstream Partners, LP (EQM)

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21.43+0.06 (+0.28%)
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  • d
    dealwithit
    This is the company's PR concerning the ruling.....

    ''As you may know, yesterday afternoon the U.S. Court of Appeals for the Fourth Circuit denied the Atlantic Coast Pipeline’s (ACP) request for an en banc rehearing related to the Court’s invalidation of the project’s U.S. Forest Service Appalachian Trail crossing authorization. ACP’s en banc petition was supported by the Department of Justice on behalf of the U.S. Forest Service, as well as by several prominent industry, labor, and business groups.

    Dominion Energy expects an appeal to be filed to the Supreme Court of the United States in the next 90 days. The company is also pursuing legislative and administrative options as previously discussed on Dominion Energy’s February 1, 2018 earnings call. We are confident that the U.S. Departments of Interior and Agriculture have the authority to resolve the Appalachian Trail crossing issue administratively in a manner that satisfies the Court’s stated objection and in a time frame consistent with a restart of at least partial construction during the third quarter. We will continue to work to resolve the outstanding biological opinion issue as well as the Appalachian Trail issue and continue to believe, as a result, that at least partial construction will recommence in the third quarter of 2019.

    The project cost and timing guidance provided on the Company’s February 1 earnings call fully contemplated the possibility of an unsuccessful en banc request. Therefore, yesterday’s Fourth Circuit decision does not alter our operating EPS guidance as provided to the investment community on that call. Dominion Energy remains confident in the full completion of the Atlantic Coast Pipeline along the entire 600-mile route.''

    As a side note I bought some shares on the drop today.
  • d
    danaphanous
    I know most people are sour on the ETRN/EQM merger given that prior to the renegotiation of EQT contracts EQM was definitely the best money-maker of the group. However, I wanted to give this a fair analysis so I looked into the ownership percentages. Also, as pointed out by someone else here, EQT continuing to hemorrhage money on rate agreements with EQM that were no longer profitable is not in anyone's best long-term interests. If EQT goes under, EQM loses most of their contracts, thus a renegotiation of EQT contracts was needed assuming these market conditions persist.

    So, the facts of the merger:
    - EQT gets rate credits to lower their costs and in return they mainly agree to relinquish 25.3M share interest in ETRN (50% of their stake), settling for only a little cash, but they get the rate relief they need to remain profitable in this market and keep moving gas and oil.
    - EQM as a company will disappear and merge with ETRN as a new C-corp. It will lose its MLP status in the process. Current EQM unitholders get 2.44 shares in ETRN for each of their current shares. This is a 3% premium to the 20-day average share price of the two stocks prior to the announcement.

    But is it actually a fair trade? To determine this you would want to look at the expected net profit per share and book value per share in the new company. And keep in mind that ETRN is mainly just a holding company for EQM anyway, holding 60% of the company for those that want interest without the MLP tax consequences, and only 40% of the units actually are publicly issued. This corporate structure is shown as a diagram on page 11 of the 10K. So if the ETRN shareholders vote for the merger it will be a done deal unless management negligence or insider trading can be proven.

    So, the new combined company EQM and ETRN will have a similar asset base to the current EQM, plus some of ETRN's other investment interests, and retire 25.3M shares currently owned by EQT in exchange for making less profit off of EQT. EQT will own a remaining 6% of the combined company and public shareholders of EQM and ETRN will own the remaining 94% (as stated by the company on page 11 of 10K). Preferred units and bonds will be settled on a case by case basis, and I'm not considering them here, but the convertible ones could become new EQM shares and thus dilute further and ETRN owned some of these also for their 60% stake ratio. Anyway, using above numbers this means there will be a total of about 426M shares in the new company, 6% of which is EQT's remaining stake, 46% of which was old EQM unitholders, and 54% of which is old ETRN unitholders. Given that before this simplification agreement ETRN held 60% of EQM and common unitholders 40% and now only holds 54% of the combined and common unitholders hold 46%, you can see that this transaction actually gives EQM unitholders a larger stake of the combined company than they had in just EQM. The conversion rate is also a slight premium to how the stock prices have been trading. The dividend difference before both were slashed was 2.58 (0.6 is the new dividend for ETRN, it was also higher before this announcement) so you are taking a slight hit on yield per share in the conversion, but this is expected due to the difference in tax treatment. In fact, MLP yields are generally higher than that difference due to the favored tax treatment and this is a cost in ETRN's income reports to convert MLP distributions to normal dividends, so this appears to be a favorable trade as well (based on prior divvy numbers)...anyway, a moot point since both distributions were slashed to pay of debt.

    I calculate the actual ratio assuming a maintained 60%/40% ratio should have been 1.67 shares ETRN per share of EQM, but the ratio is about right realizing the combined company is retiring 25.3M shares owned by EQT. That's where the extra 6% comes from and that share retirement benefit is going entirely to EQM unitholders, not ETRN shareholders (40% + 6% = 46% ownership in new company by EQM unitholders). Anyway, now that the announcement has been made, ETRN and EQM are trading at the 2.44 ratio so this isn't much of an arbitrage opportunity. The only reason you should buy is if you think the management decisions are good. ETRN and EQM are going to take a revenue hit for the next couple years based on renegotiated rate agreements with EQT. In return, shareholders are rewarded with a 6% gain in their ownership % from the retiring of shares and management slashes the dividend and the promise that management will use the lost income to rapidly delever, thus putting the company on solid financial footing during this uncertain market time and building future shareholder book value in replacement of income. This doesn't seem to be a bad trade for a long investor and EQM unitholders got a nice 6% gain on this transaction in share book value difference.
  • d
    danaphanous
    So, I got a question for longs here. Was checking out EQM and it is the most undervalued company I've seen relative to assets this year. It is currently selling at just slightly above its tangible book value (way below book value). Is this because of the recent impairment charge and fears that more of their intangible worth will go down as production is downscaled or are there greater fears such that the new pipeline will be in limbo and wasted money? The management seemed pretty confident the pipeline permits would be reissued, but if they aren't and that takes several years, that is the only valid reason I can think way this would be selling at such a rock bottom price with respect to assets. Particularly when the company has been growing well and covering a massive distribution.
  • d
    dealwithit
    The share price was solid in the middle 70's for four years (2014-2017) until the MVP started to be hit by delays. What was once supposed to cost 3B to build and be finished in Q1 2018 (first delayed until Q4 2018 then Q1 2019 and now Q4 2019) now is going to cost up to 4.5B (50% born by EQM). That's the bad news.

    The good news is it's 70% completed and the delays will very likely end this year and they'll hit their newest completion date.

    That, along with their other growth projects, will move EBITDA up from 1B last year to nearly 1.8B over the next 3 years.

    With no need to sell shares to fund any projects and a low debt ratio (currently 3.5X), along with solid dividend coverage (above 1X last year moving to 1.2X for 2019), the low share price isn't really a factor in how this will play out over the next few years.

    So.....for those willing to wait out the delays eventually MVP and Southgate will give EBITDA a 30% bump by 2020 (no more major delays) followed by another growth spurt in 2020-21 (for a total of 80% from 2018.....going from 1B 2018 to E1.8B 2021).

    My thinking is when the see both pipelines start to reach the finish line the share price will go right back to where it was over that 4 year period. In the meantime you an 11% (at the current price) payout to wait.

    Meaning I'm buying shares into this drop.
  • D
    Daryl
    You know, anyone worried about this company needs to read their "2020 Financial and Capital Expenditure Guidance" "The 2020 business plan is expected to be funded through retained cash flow and existing liquidity under EQM’s $3 billion unsecured credit facility. As of September 30, 2019, the EQM credit facility had approximately $2.7 billion of available capacity." Not much to worry about, link below. Good luck to all longs
    https://ir.eqm-midstreampartners.com/news/news-details/2019/Equitrans-Midstream-and-EQM-Midstream-Partners-Provide-2020-Financial-and-Capital-Expenditure-Guidance/default.aspx
    Equitrans Midstream Corporation (NYSE: ETRN) and EQM Midstream Partners, LP (NYSE: EQM) today announced 2020 financial and capital expenditure guidance. EQM Financial Forecast: $B 2020 Forecast Net income attributable to EQM $1.05 - $1.10 EQM adjuste
    Equitrans Midstream Corporation (NYSE: ETRN) and EQM Midstream Partners, LP (NYSE: EQM) today announced 2020 financial and capital expenditure guidance. EQM Financial Forecast: $B 2020 Forecast Net income attributable to EQM $1.05 - $1.10 EQM adjuste
    ir.eqm-midstreampartners.com
  • d
    dealwithit
    I thought earning were good....in line without the 300M goodwill write off from acquired assets.

    '''' EBITDA was $335.0 million; net cash provided by operating activities was $234.6 million; and distributable cash flow was $234.2 million. ''

    Coverage was about 1X....and will jump to about 1.3X once the MVP is completed.

    The 300M in goodwill write off should have been expected since EQM itself has lost 15 dollars in value (3B in market cap) over the last few months when NG prices started tanking.

    The write off is related to drillers cutting back on future growth.....which is a good thing for NG prices going forward and for the health of the drillers (healthy drillers equals more solid future earnings for EQM).

    So....get the MVP done and let's move on. In the meantime take the 15% payout and be happy.
  • G
    Gregory
    Paste from Credit Suisse yesterday:

    24 February 2020 Americas | United States Equity Research
    Research Bulletin
    EQM Midstream Partners LP (EQM.N)
    Positive Read-Through from SCOTUS Comments on ACP
    ▪Atlantic Coast Supreme Court Opening Arguments Appear Positive for MVP: Today, the Supreme Court held opening arguments on the ACP vs. Cowpasture case, and initial news reports suggest a majority of justices seem to resist the idea of blocking the Atlantic Coast pipeline from crossing the Appalachian Trail. Justices echoed an argument we’ve heard consistently that blocking the pipeline would create an “impermeable barrier” permanently separating consumers along the East Coast from energy resources west of the trail. This is preliminarily a very positive read-through for EQM’s MVP project, which will need essentially the same clearance to complete construction (stock now outperforming midstream by 5-6%). A favorable ruling would provide a clearer path for a MVP in-service date. That said, we do acknowledge the final ruling remains months away (latest June 2020) and other regulatory challenges may arise.
  • D
    Daryl
    Just remember, if you paid a higher price for EQM or ETRN, you are not the only one. Institutions own 85,940,582 Shares of EQM and 240,086,236 of ETRN, all bought at a much higher price than todays price. Most of the Institutions are not selling and know that in the big picture, the stock price will appreciate on solid business fundamentals and over time. Natural gas always goes through cycles, patience is the key. Good luck to all Longs
  • S
    Steve
    natural gas trading at $1.74 is the issue but the market doesn't realize something - EQM and ETRN are midstream providers for natural gas and water delivery, i.e. they are NOT same as oil producers. They are simply bridges for natural gas and water to be transported from one city to another.

    Yes, right now, everything is down even government-controlled utility companies but the risk exposure of midstream partners are not as high as what people think.

    MVC being a good money maker, merging EQM and ETRN (and buy back ETRN shares from EQT) is the best long term play. Look at all the debt/preferred shares getting redeemed as a part of deal - after the merger completed in Q3, im pretty sure that everyone can see the value of this consolidated company with much less debt on the book.
  • C
    CASHRUS
    The company is committed to the dividend and has cash flow to cover. What’s the problem? I have been adding and will add more when dividend hits 23%.
  • M
    Milos
    Mountain Valley Pipeline extension clears environmental review
  • d
    dealwithit
    It appears, for the moment anyway, this stock is being driven by events surrounding the MVP. This news just came out on Friday, which I suspect is the reason the share price turned around and headed north midday.

    https://www.roanoke.com/business/news/state-water-board-reverses-course-again-on-mountain-valley-pipeline/article_1a0af448-562f-5f62-91f7-21abb9751eca.html

    My thinking is while the MVP is a big deal (expected to contribute 220M a year in EBITDA when it's completed) it's not the end all here. By 2021 they expect to have EBITDA of 1.8B per year, so even if the MVP was completely cancelled and written off (which I seriously doubt will happen) at this point they'd still have expected growth of 60% from 2018 to the end of 2021.

    The bottom line is while the events surrounding the MVP will continue to wreak havoc on the share price (both up and down) the value destroyed so far (about 7 Billion in market cap since Jan 1, 2018) because of the delays (MVP was originally scheduled to be completed in Q1 2018) is far more than the earning lost because of those delays (two years of delays at 220M a year). In fact, if you run the numbers the market cap lost here since Jan 1st is about equal to 30 years of earnings they expect from the project. To me, that's kind of over kill by the market....and one major reason why I'm currently long.
    RICHMOND — After starting a process that could have pulled a key permit for the Mountain Valley Pipeline, a state board responsible for protecting Virginia’s water reversed course Friday.
    RICHMOND — After starting a process that could have pulled a key permit for the Mountain Valley Pipeline, a state board responsible for protecting Virginia’s water reversed course Friday.
    www.roanoke.com
  • D
    Daryl
    If you listen to their 3Q call, management is clear, saying they will not cut their future distributions, period. Looking forward to 4Q call FEB 12, maybe this stock will wake up. Good luck to all Longs
  • d
    dealwithit
    Looks like a good deal to me.

    The convertible equity notes pay about 8.5% for the next 5 years, then a formula after that, while EBITDA will return 100M (about 10%) the first year then jump 20% per year after that (if it works out as planned)....which means they are probably paying around 6X EBITDA rather than 10X that's advertised.

    If the MVP pipeline goes through without any more interruptions, completed Q4 2019, EQM is going to post some serious growth for 2020 and years going forward (north of 50% EBIDTA).

    They can force a conversion of those notes if the share price is up 140% from the 48.77 base....which EQM can do after two years.
  • J
    Joe
    I must say, trading in this stock defies all logic. In the days leading to dividend the stock went down, on ex dividend day it goes up.
  • m
    mike
    “Once placed in service”. Quote from current dismal quarterly earnings release. MVP was supposed to be in place a year ago. Now, you are telling us next year. And a huge part of this latest delay was an environmental fiasco from improper supervision. Enough. We deserve new leadership. Competent leadership. Someone who knows all facets of the business. EQM has the potential to be a cash machine for a decade. But not with this current management team. I’ve held EQM stock from the IPO with a decent size position in ETRN. We deserve competent leadership. Today. CEO, you leave at the next MVP postponement. Senior leaders responsible for this delay need released today. Show your stock holders you can make tough decisions.
  • d
    dmorgan2151
    It's got to be 3 or 4 times now that companies split their or spin off their midstream from the drilling operations and every single time it happened the drilling operations lagged and the Midstream doubled and tripled. Then After that they were bought out for even more money. This is a Huge BUY.....
  • C
    Clovus
    Excellent 5 day chart. 3 month cup and handle forming. indicates a move higher we added to our position today at $29.30
  • M
    Michael
    I just start buying this stock about a month ago at 31.00 and higher been buying a couple of times a week. I like the dividend it hard to be bullish on this stock when it below 200 sma . to me any stock below the 200 sma or the 200 ema. I start thinking do you feel that this stock found the bottom at 28.00 and it will start going up to 40to 50 a share or I just wasting my time and money. The thing that I worry about if it start going back down to 20 a share. let me known what you think. keep buying more or wait and see what happens with it in the next couple of week. .
  • w
    welbie100
    The most important thing here is: Is the current Divy sustainable while they wait for pipeline permits to clear ??