EUR 850.00 For Business Accounts Only

Morningstar | Williams Displays Steady Progress in 1Q; Deft Hand on Asset Sales

Williams reported decent first-quarter results, and we do not plan on material changes to our $28 fair value estimate or narrow moat rating. As expected, Williams' results were fairly steady with adjusted overall EBITDA increasing 7% year over year to $1.2 billion, mainly benefiting from new Transco projects Atlantic Sunrise and the Gulf Connector placed in service. These projects, which went into service in October 2018 and January 2019 were the primary contributor to the $97 million in incremental EBITDA, boosting EBITDA by 21% year over year for the Atlantic-Gulf segment. Similarly, the Northeast G&P business also improved EBITDA by 21%, as its gathering volumes benefited from the ability to supply Transco's new expansions. Williams is delivering on its projects to meet its goal of 15% growth in gathered volumes here, a goal that we were initially skeptical about. The West segment was weakest, hurt by poor commodity margins and weather. The dividend coverage ratio now stands at a very high 1.7 times, allowing for plenty of cash to be reinvested in the business without requiring equity issuances.

We consider Williams to have displayed a deft hand on its recent asset sales, as its 2019 guidance on EBITDA remained unchanged with a midpoint of $5 billion, matching our expectations, despite having sold off profitable assets for $1.1 billion in cash, though the timing of the sales means the impact would be felt more next year. Broadly, this would suggest the Transco assets exceeding initial expectations, which wouldn't be surprising given the pipeline broke records for volumes in late January.

Williams noted that it plans to use the $1.1 billion in cash for debt reduction from its two recent asset sales (see our March 19 and April 10 notes for more). The debt reduction would bring down its debt-to-EBITDA ratio to below 4.6 times by the end of 2019 from its earlier guidance of below 4.75 times. More positively, the sales have also contributed to lowering 2019 capital spending plans to $2.4 billion from $2.8 billion, freeing up incremental cash for debt reduction as well.