Credit Suisse Downgrades Plains GP Holdings, Slashes Target On Plains All American

• Plains GP Holdings LP PAGP shares have plummeted 59 percent since November 10, while shares of Plains All American Pipeline, L.P. PAA have lost 44 percent.
• Credit Suisse’s John Edwards downgraded the rating for Plains GP Holdings, while reducing the price targets for both Plains GP Holdings and Plains All American.
• Management’s 2016 guidance appears too aggressive, assuming higher crude prices, Edwards stated.

Plains All American’s quarterly results were weak, mainly in terms of volumes. Adjusted EBITDA came in at $563mm, below the Credit Suisse estimate of $580mm. Transportation’s segment profit stood at $256mm, short of the Credit Suisse estimate of $269mm.

Analyst John Edwards believes that management’s 2016 guidance is about 4 percent “too high,” since it assumes $47.50/bbl crude, which is significantly higher than the Credit Suisse forecast.

Edwards pointed out that storage continues to build, which means that crude prices and volumes would deteriorate further. Plains All American is undertaking constructive steps to improve its balance sheet, including an estimated $400-$500mm of non-core assets sales. This, along with the $1.6B preferred issuance in January, is sufficient to cover all capital programs in 2016 and most of them for 2017.

“We model flat distributions until 2019 when we expect coverage to return to management's targeted 1.05-1.10x but note that further deterioration could pressure PAA to re-examine the distribution to further strengthen the balance sheet, in our view,” the analyst wrote.

The EBITDA estimate for 2016 has been reduced by 3 percent to $2,175mm, which is now 4 percent below the guidance midpoint of $2,275mm. The DCF estimate has been reduced by 4 percent to $1,514mm, 4 percent below the guidance midpoint of $1,586mm.

Edwards downgraded the rating for Plains GP Holdings from Outperform to Neutral, citing lower total return potential. He reduced the price target from $14 to $8. Credit Suisse maintained a Neutral rating for Plains All American, while slashing the price target from $33 to $19.