Plains All American's Partial Divesture Of BridgeTex Turns BofA Bullish

Plains All American Pipeline, L.P. PAA confirmed in late August it divested a 30-percent stake in BridgeTex Pipeline Co., eliminating any need for Plains to seek external equity financing, according to Bank of America Merrill Lynch. 

The Analyst

Analyst Dennis Coleman upgraded Plains GP Holdings LP PAGP — a publicly traded entity that owns an indirect and non-economic controlling general partner interest and an indirect limited partner interest in Plains All American Pipeline — from Neutral to Buy with a price target lifted from $26 to $30.

The Thesis

As part of the agreement, Plains and Magellan Midstream Partners will collectively sell a 50-percent stake in BridgeTex to Canada's pension fund for $1.44 billion, Coleman said in the upgrade note. (See his track record here.)

On its end, Plains will receive $863 million, which implies the company has nearly doubled its prior target of selling $700 million worth of assets in 2018.

The transaction is viewed favorably for both Plains and its controlling general partner, as it can now fully self-fund its current growth capex plans, the analyst said. The company remains well-positioned to realize growth in the Permian, and the "next wave of capex" including a decision on a joint venture with Exxon Mobil Corporation XOM, is expected in the fourth quarter and likely to prove a positive catalyst for the company, he said. 

Price Action

Plains GP Holdings shares were up 2.34 percent at $24.90 at the close Tuesday, while Plains All American Pipeline shares were up 2.2 percent at $25.59.  

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