BlueKnight Energy Partners (BKEP) Update - Nov 29

[dan_s]

BlueKnight is a "niche" company that I have been following for over 5 years. Their preferred units (BKEPP) are in our High Yield Income Portfolio because the preferred units have a fixed quarterly distribution that must be paid and up-to-date before any distributions can be paid to common unitholders. The company is now generating lots of DCF, so I think the common units are a BUY up to $5.00. BKEP closed at $3.26 today. My current valuation is $6.00.

At $3.26 the common units have dividend yield of 4.9% ($0.04 per quarter), but they have a lot more upside.
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BKEP Q3 results beat my forecast. My comments are in blue.

Highlights

> Third quarter 2021 income from continuing operations was $12.6 million, up 34% year-over-year
> Third quarter 2021 Adjusted EBITDA from continuing operations of $16.9 million and Distributable Cash Flow from continuing operations of $13.9 million, up 22% and 21% year-over-year, respectively < This is why BKEP is a Strong Buy.
> Expected to exceed full-year 2021 guidance on key financial targets
> Top-tier financial metrics with third quarter 2021 total leverage ratio of 1.87 times and distribution coverage ratio of 1.73 times on all distributions and 4.35 times on common unit distributions < If this continues, they will increase quarterly distributions on BKEP.

TULSA, Okla., Nov. 10, 2021 (GLOBE NEWSWIRE) -- Blueknight Energy Partners, L.P. (“Blueknight” or the “Partnership”) (Nasdaq: BKEP and BKEPP) today reported its financial results for the third quarter ended September 30, 2021. Income from continuing operations was $12.6 million in the third quarter of 2021, compared to $9.4 million for the same period in 2020. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) from continuing operations was $16.9 million in the third quarter of 2021 compared to $13.8 million for the same period in 2020. The year-over-year increase was due to higher asphalt terminalling services operating margin, excluding depreciation and amortization, improved general and administrative expense, and other income of $2.1 million related to insurance claim reimbursements.

“Our business continues to outperform our expectations, and we had one of our best quarters to date,” commented Andrew Woodward, Chief Executive Officer. Our income from continuing operations, Adjusted EBITDA, and Distributable Cash Flow were up year-to-date 27%, 12% and 19%, respectively, while total volumes were in-line with the prior year and slightly above the trailing three-year average. We also achieved several milestones during the quarter, including reaching or exceeding both our long-term leverage and distribution coverage ratio targets, fully transitioning and achieving our synergy targets related to our crude oil business sale, and extending all 2021 contracts to date at current or more favorable terms.

“Furthermore, last week Congress passed the largest federal investment in infrastructure in more than a decade that includes $110 billion for roads, bridges, and other major projects. This historic capital infusion in our nation's roadways combined with the strength and financial position of our current business, provides for a favorable outlook for years to come,” added Woodward.

QUARTERLY PERFORMANCE

Asphalt terminalling services total operating margin, excluding depreciation and amortization, in the third quarter of 2021 was $17.4 million, up 6% compared to the same period in 2020. Total asphalt throughput volumes for the third quarter of 2021 were 7% higher compared to the same period in 2020. Total revenue increased to $30.3 million, with approximately 90% categorized as fixed-fee, take-or-pay revenue after excluding variable cost recovery revenue. Total variable throughput revenue increased 6% compared to the same period in 2020 primarily due to the timing of certain customers achieving excess volumes over annual minimum thresholds during the third quarter.

Total operating expenses, excluding depreciation and amortization, increased 3% to $12.9 million. Notable factors contributing to this increase included certain contracts that changed from a lease arrangement to an operating arrangement, and higher utility costs, which are passed-through and have no impact on total operating margin.

General and administrative expense in the third quarter of 2021 was $3.0 million, improved by 8% as compared to the third quarter of 2020 due to lower corporate overhead following completion of the crude oil divestitures in the first quarter of 2021.

BALANCE SHEET AND CASH FLOW

Third quarter 2021 Distributable Cash Flow was $13.9 million compared to $11.5 million for the same period in 2020. The 21% increase was attributable to improved business performance, other income, and lower cash interest expense, which offset timing of higher maintenance capital. The coverage ratio on all distributions was 1.73 times for the third quarter of 2021 versus 1.42 times for the same period in 2020. The coverage ratio on common unit distributions was 4.35 times for the third quarter of 2021 versus 2.96 times for the same period in 2020.

During the third quarter of 2021, net capital expenditures from continuing operations were $2.7 million, which included $2.4 million of net maintenance capital.

As of September 30, 2021, total debt was $101.0 million, and the leverage ratio was 1.87 times, versus 4.06 times as of September 30, 2020. At the end of the third quarter of 2021, total availability under the credit facility was $198.3 million, and availability subject to covenant restrictions was $157.2 million.

As of November 4, 2021, total debt was $96.0 million and total cash was $0.1 million.