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We take a look at the quarterly results of TC pipelines (TCP), listed on the New York Stock Exchange (NYSE) for the period ending September 2018. They are involved in maintaining and moving natural gas via pipelines to users.
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About TC pipelines
TC PipeLines, LP is a United States limited partnership which has delivered value to its investors while maintaining a solid cash distribution coverage ratio. TC PipeLines, LP was formed by TransCanada PipeLines Limited to acquire, own and actively participate in the management of United States based natural gas pipelines and related assets.
Through its disciplined investment philosophy, TC PipeLines, LP owns, or has interest in the following eight critical FERC regulated, low-risk energy infrastructure pipelines, capable of moving 9.4 billion cubic feet per day of natural gas:
Through its disciplined investment philosophy, TC PipeLines, LP owns, or has interest in the following eight critical FERC regulated, low-risk energy infrastructure pipelines, capable of moving 9.4 billion cubic feet per day of natural gas:
- 46.45 percent of Great Lakes, a Delaware limited partnership formed in 1990. The remaining 53.55 percent is held by subsidiaries of TransCanada. The Great Lakes pipeline system consists of 2,115 miles of pipeline extending from the Canadian border near Emerson, Manitoba, Canada to St. Clair, Michigan, near Detroit, and has an average design capacity of approximately 2.4 Bcf/d at Emerson. The original construction of the Great Lakes system occurred in 1967 and 1968. Numerous capacity system expansions have occurred since its original construction, the last one completed in 1998.
- 50 percent of Northern Border, a Texas general partnership formed in 1978. The remaining 50 percent is held by ONEOK Partners, L.P. (ONEOK Partners). The Northern Border pipeline system consists of approximately 1,400 miles of pipeline extending from the Canadian border near Port of Morgan, Montana, to a terminus near North Hayden, Indiana, south of Chicago. Northern Border has a design capacity of approximately 2.4 Bcf/d. Construction of Northern Border’s system was initially completed in 1982, followed by expansions or extensions in 1991, 1992, 1998, 2001 and 2006.
- 100 percent of GTN, a 1,353-mile natural gas transmission system originating near Kingsgate, British Columbia at the Canadian border and connecting with the Tuscarora pipeline system near Malin, Oregon at the California border (GTN Pipeline). The GTN Pipeline transports Western Canada Sedimentary Basin and Rocky Mountain-sourced natural gas to third-party natural gas pipelines and markets in Washington, Oregon and California. The GTN Pipeline has an average design capacity of approximately 2.9 Bcf/d. The original construction of the GTN Pipeline was completed in 1961, followed by expansions or extensions in 1993, 1995 and 2002.
- 100 percent of Bison, an approximate 300-mile natural gas pipeline originating from the Powder River Basin near Gillette, Wyoming connecting to the Northern Border system in Morton County, North Dakota (Bison Pipeline). Construction of the Bison Pipeline commenced in July 2010, and the pipeline was placed into service in January 2011.
- 100 percent of North Baja, a Delaware limited liability company formed in 2000. The North Baja pipeline system consists of 86 miles of pipeline extending from an interconnection with the El Paso Natural Gas Company (EPNG) pipeline near Ehrenberg, Arizona, to an interconnection with the Gasoducto Bajanorte natural gas pipeline near Ogilby, California on the Mexican border. North Baja has a design capacity of 500 million cubic feet per day (MMcf/d) for southbound transportation and 600 MMcf/d for northbound transportation. The North Baja pipeline system was initially placed into service in 2002. An expansion was completed in April 2008 to allow for bi-directional natural gas flow and the Yuma Lateral, from the Mexico/Arizona border to Yuma, Arizona, was completed in March 2010.
- 100 percent of Tuscarora, a Nevada general partnership formed in 1993. The Tuscarora pipeline system consists of 305 miles of pipeline extending from the Gas Transmission Northwest Corporation (GTN) pipeline, a wholly-owned subsidiary of TransCanada, near Malin, Oregon to a terminus near Wadsworth, Nevada. Tuscarora has a design capacity of 230 MMcf/d. The Tuscarora pipeline system was initially placed into service in 1995, followed by expansions or extensions in 2001, 2002, 2005 and 2008.
- 61.7 percent of PNGTS, a 295-mile natural gas pipeline originating near Pittsburg, New Hampshire where it connects with TransCanada's TQM system to a terminus near Dracut, Massachusetts. The pipeline delivers natural gas to customers in the U.S. northeast. The remaining 38.3 percent is owned by a subsidiary of Gaz Métro. PNGTS has a design capacity of168 MMcf/d at the Canadian border increasing to 210 MMcf/d from Westbrook, Maine to Dracut. The pipeline system was placed into service in 1999.
- 49.3 percent of Iroquois, a 416-mile interstate natural gas pipeline that extends from the U.S.-Canadian border at Waddington, New York, onward through New York State and western Connecticut, finally reaching its end point in the Bronx, New York. Of the remainder, 0.7 percent is held by a subsidiary of TransCanada and 50 percent is owned by affiliates of Dominion Resources, Inc. The system began operations in 1992 and has a design capacity of 0.5 Bcf/d, delivering natural gas to customers in the U.S. Northeast.
Through its disciplined investment philosophy, TC PipeLines now has investments in eight critical FERC regulated, low-risk energy infrastructure pipelines, capable of moving 9.4 billion cubic feet per day of natural gas. Revenues from these assets are derived almost entirely from fee-based charges. With access to new gas supplies through support from its sponsor, TransCanada Corporation, who also operates our assets on our behalf, TC PipeLines’ assets are connected to two of the largest supply basins in North America that are positioned to grow over the next decade. With a strong and conservative balance sheet, a low general partner cash take and an ample amount of available liquidity, we are well positioned.
So to the numbers we go
- Generated net income attributable to controlling interests of $62 million
- Paid cash distributions of $47 million
- Net income per common unit/share : $0.79, which places them on a PE ratio of 9.46
- Declared cash distribution of $0.65 per common unit, consistent with the first and second quarter 2018 distributions, which gives a distribution yield of around 8.7%, which is very lucrative
- Generated EBITDA of $113 million (up 9.7% from $103 million in the prior year)
- Distributable cash flow of $83 million
- Cash and equivalents on the balance sheet: $43 million (or $0.67 per share)
So any comments or guidance from management on the results?
The released results do not contain a lot of information from the company's management. Looks like they keeping it short and sweet. Below a few extracts from the results.
During the third quarter of 2018, our portfolio of high quality, natural gas pipelines performed very well, generating 30 percent higher net income per common unit than in the same quarter last year,” said Nathan Brown, president of TC PipeLines, GP, Inc. “Our strategically located pipelines continue to benefit from increased natural gas flows, largely out of the Western Canadian Sedimentary Basin, and from additional contracting, both of which are contributing to our current results.”
During the third quarter of 2018, our portfolio of high quality, natural gas pipelines performed very well, generating 30 percent higher net income per common unit than in the same quarter last year,” said Nathan Brown, president of TC PipeLines, GP, Inc. “Our strategically located pipelines continue to benefit from increased natural gas flows, largely out of the Western Canadian Sedimentary Basin, and from additional contracting, both of which are contributing to our current results.”
“We have a healthy balance sheet and strong coverage ratios,” continued Brown. “We have made significant progress in our response to the actions of the FERC earlier this year, and look forward to finalizing our regulatory strategy by year’s end. Our reliable and diversified pipeline assets are in high demand and we are pursuing further appropriately sized, well-placed and well-timed organic expansion opportunities. Our Portland XPress project is a good example of our ability to economically and efficiently expand our existing infrastructure.”
So should you buy their shares?
Well they are operating in a market with relatively high barriers to entry. Not anyone can decide and start doing what they are doing. So from that point of view they are operating in a good space. Earnings over the first 3 quarters of the year seems very consistent and stable, so not a lot of fluctuations in demand for their goods. so the fee based system they have currently seems to work well. Their PE ratio is not demanding at all, and the distribution/dividend paid as percentage of the share price is very strong. We would advise investors to buy it just on account of the distribution earnings and not necessarily for capital growth over time
TC pipelines valuation
With the market they operate in, their strong distribution paid and relatively low PE ratio of the group, we value them at $34.20 a share. So we believe there is some upside for the share price ad even at our valuation, they will be at a PE of 10.2 and a distribution yield of 7.6%