Credit Suisse took a look at Columbia Pipeline Partners LP (NYSE: CPPL) and Columbia Pipeline Group, Inc. (NYSE: CPGX) in its most recent report and the outlook is somewhat mixed. With continued weakness in the global oil markets and no real bottom in sight, a conservative view, or Neutral rating, would be prudent in this case.
A dropdown to Columbia Pipeline Partners (CPP) is still expected in 2016, although Columbia Pipeline Group’s (CPG) $1.4 billion equity raise last December has effectively funded the operating company (OpCo) through 2017. CPG also now expects to pay no cash taxes through 2023 due to recent bonus depreciation legislation. Management expects to hit at least $1.7 billion of EBITDA in 2020 driven by roughly $7 billion of identified growth projects and $4-to-$5 billion of modernization, which is in line with Credit Suisse’s $1.68 billion estimate.
According to Credit Suisse:
The two key risks to the story remain: 1) Project execution, though CPG has a long history of completing projects on time and within budget and 2) Capital raising. CPP equity is still expected to be the primary funding vehicle for OpCo and successful completion of the growth backlog assumes equity markets access post-2016. Overall, our consolidated EBITDA estimate for OpCo falls 5% in 2016 to $703 million and 6% in 2017 to $770 million while 2018 remains mostly unchanged at $1.03 billion. The equivalent 2016E EBITDA for CPP is $138 million and $664 million for CPG after adjusting for NCI.
As a result, Credit Suisse is downgrading Columbia Pipeline Partners to Neutral with a $22 price target. Also Columbia Pipeline Group has a Neutral rating with a $23 price target.
Columbia Pipeline Partners was last trading down 2.4% at $15.33, with a consensus analyst price target of $20.58 and a 52-week trading range of $11.24 to $29.00.
Columbia Pipeline Group was recently trading down 4.2% at $16.97, with a consensus analyst price target of $24.63 and a 52-week trading range of $15.39 to $33.00.
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