We are reiterating our Buy recommendation, price objective and estimates for TC Pipelines, L.P. (TCLP) units. The partnership?s recent quarterly results, while on the lower side relative to our estimates, were above year-earlier levels.

The year-over-year increase resulted from higher transmission revenue, lower financial charges and increased equity income from Great Lakes, partially offset by a fall in equity income from Northern Border. Importantly, TCLP raised its quarterly distribution by 7.6% year-over-year to the annualized rate of $2.82 per unit.

We continue to like the partnership for the potential addition of quality assets to its portfolio as well as the anticipated volume increases from organic projects.

Our continued positive view of TC PipeLines units reflects its attractive valuation and strong near-term distribution-growth prospects. The potential addition of quality assets from the general partner to TCLP?s portfolio over the next few quarters is a major boost to its growth prospects.

The partnership?s distribution-growth prospects have significantly improved following the completion of approximately $1.5 billion worth of acquisitions in the recent past. We project that a near-term distribution growth of 8% to 10% can be easily sustained with the current assets.

Despite this much-improved growth profile, TCLP units remain one of the cheapest in our coverage universe. Based on relative yields, TCLP units are currently trading at a yield spread of 453 basis points to the 10-year Treasury yield, at a significant discount to the peer pipeline MLP group?s average yield spread of 417 basis points.