Dominion Energy's Deleveraging Journey: Analyst Evaluates Cove Point Sale And Future Steps

KeyBanc Capital Markets analyst Sophie Karp reiterated a Sector Weight rating on Dominion Energy, Inc. D.

Dominion Energy announced that it concluded a robust and competitive sale process of 50% noncontrolling limited partner interest in Cove Point LNG, LP, to Berkshire Hathaway Energy. 

The transaction value of $3.5 billion is in the ballpark of the analyst's ~$4 billion estimate, and D has secured a higher multiple (10.8x) than the forecasted range (8-9x).

The divestment is the first step toward achieving the reset and approximate target Funds From Operations (FFO)/debt of ~15%.

While the sale of Cove Point is a big step forward, Karp thinks more work is needed.

The analyst believes the company could need up to $8 billion in additional deleveraging to achieve the desired FFO target. 

Karp estimates that for every 100 bps in FFO/debt accretion, D needs to reduce debt by $3.5 billion-$4 billion. 

This would imply that for a 200 bps accretion in FFO/debt, D would likely need to either raise up to $8 billion through asset sales or through a combination of asset sales and equity raises over time (depending on market conditions), adds the analyst. 

The exact magnitude of asset sales is impossible to predict since the cash flow profile of the assets divested will impact the volume of the sales proceeds needed to achieve the deleveraging target.

The analyst adds that the sale of some LDCs remains very much on the table.

Price Action: D shares are trading lower by 0.13% to $51.52 on the last check Tuesday.