BKH 2Q2017 Earnings: Plans for cost of service gas falls thru but there’s a silver lining

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Market Price (8/4/2017): $69.51/share; ST-Target: $81/share; NIV: $95/share

It seems that the cost of service gas program (COSGP) will not move forward for the wrong reason, but it may be a blessing in disguise. We look for BKH to sell its oil and gas business and redeploy proceeds to buy another utility. BKH is lowering 2017 AEPS guidance to $3.45-$3.60 from $3.45-$3.65, largely due to 2Q2017 results. Focus on efficiency and cost reductions to continue. We look for BKH to pull trigger on large acquisition within 12-18 months continuing its focus on Utilities. We look for BKH to pivot more towards utility projects including transmission, renewables, but also generation in general, gas pipelines and other utility projects in the ST-to-MT. Also, work on reducing regulatory lag. CO Electric issued 60MW renewable RFP. Capital spending budget for 2017E-2020F was raised. BKH renewed its At-the-Market equity offering program, more as a contingency rather than for an imminent event. Mancos shale could be worth between $20/share-to-$61/share to BKH if fully-developed but far less if sold. 2Q17 results were below expectations. SD Electric entered agreement with staff to stabilize rates for customers through a 6-year base rate moratorium effective 7/1/2017. Lowering our ST-Target to $81/share and our NIV/share was lowered to some $95. BKH to hold Analyst Day in New York on October 5, 2017.

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