BKEP and BKEPP Update - June 22

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

BKEP and BKEPP Update - June 22

Post by dan_s »

I worked on BlueKnight Energy Partners LP (BKEP) on Friday and we sent out the updated profile this morning. You can download the forecast/valuation model (an Excel spreadsheet) from our website.

BlueKnight is small MLP (just $47 million market-cap). It is a niche midstream company that primarily provides liquid asphalt and crude oil terminaling services. It also has a small fleet of trucks that provide oil transportation services. Just because of its size, it does have more risk than the much larger companies in our High Yield Income Portfolio, but their cash flow from operations has been consistent and the outlook for 2H 2019 looks very good.

Their common units trade as BKEP and their preferred units trade as BKEPP. The preferred units are in our High Yield Income Portfolio. Annual yield on BKEPP is ~14%.

What I like about BKEPP:
> As "preferred units" their quarterly cash distributions must be paid up before any distributions can be made to the common units (BKEP).
> The 100% owner of their GP is Ergon Asphalt & Emulsions, Inc. ("Ergon"), a very strong private company that was founded in 1954.
> Ergon holds 52.1% of BKEPP and 27.3% of BKEP. Ergon has a vested interest in making sure BKEP is profitable.
> Take a look at the bottom of the forecast model and you will see that BlueKnight generates more than enough cash flow from operations to cover all of their annual capital expenditures and the quarterly distributions on both BKEPP (must be paid first) and BKEP.

BlueKnight is an MLP and holders of both the common units and the preferred units will get an annual K-1. BTW most their distributions are tax deferred.

BKEP has more upside potential (trading at less than half of my valuation) and it also pays a nice quarterly distribution, but the yield on the preferred units is more secure.
Dan Steffens
Energy Prospectus Group
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