Key for Investors: Analysis of Williams Partners’ 2Q15 Earnings
(Continued from Prior Part)
Williams Partners’ outlook
According to Williams Partners’ (WPZ) management, distributions are expected to stay flat for the rest of 2015. Its quarterly distribution per unit—$0.85 for the rest of 2015—should bring the total to $3.40 for the whole of 2015. This represents a 29% YoY (year-over-year) rise for fiscal year 2015 compared to fiscal year 2014.
One reason for Williams Partners’ flat distributions in 2015 could be its weak distribution coverage ratio. Williams Partners’ distribution coverage improved in 2Q15—compared to the previous quarter. However, it’s still less than one. The rise in the partnership’s distributable cash flow over the coming quarters should help boost its distribution coverage ratio to comfortable levels.
Distribution yield
Williams Partners has a current distribution yield of 8.24%. The reasons for Williams Partners’ high distribution yield can be attributed to the tier-4 IDRs (incentive distribution rights) present in its capital structure, its flat distributions in the last two quarters, and its low coverage ratio. The tier-4 IDRs lead to a large share of distributions being paid to the general partner.
Williams Partners’ peers, ONEOK Partners (OKS) and Enbridge Energy Partners (EEP), also have IDRs in their capital structures. These companies are currently trading at distribution yields of 10.19% and 8.37%, respectively. Meanwhile, MarkWest Energy Partners (MWE) has no IDRs. It’s trading at a current yield of 6.42%. Williams Partners’ general partner, Williams Companies (WMB) is structured as a c-corp. It has a current dividend yield of 4.80%. Together, these companies account for ~24.23% of the Alerian MLP ETF (AMLP).
WMB-WPZ deal
In its analyst day meeting held on May 13, 2015, Williams Companies announced that it would acquire all outstanding shares of Williams Partners at a fixed exchange ratio of 1.115x. The WMB-WPZ merger was expected to be complete by 3Q15. The deal stalled after Energy Transfer Equity (ETE) made a proposal to acquire all outstanding shares of Williams Companies. Williams Companies rejected ETE’s proposal and started exploring for strategic alternatives.
In the 2Q15 earnings conference call, Williams Partners’ management didn’t provide any update on the strategic alternative process. According to Alan S. Armstrong, president, CEO, and director of Williams Companies, “A robust competitive process, we believe, is the best way to get the best options on the table and to maximize shareholder value and the board’s review is meant to accomplish just that. The process is underway and we’re pleased with the progress to-date.”
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