Archive for October, 2007
Tuesday, October 30th, 2007
We recently posted an entry outlining the importance and calculation of distributable cash flow (DCF) when evaluating MLPs. In a nutshell, DCF represents what the MLP could have paid out in cash to unitholders had it chosen to do so. However, while investors want to see cash distributions grow over time, they also want to see the MLP managing cash responsibly as well. That is, they want to feel confident that the firm is maintaining reasonable levels of cash “coverage” so it can continue to grow the business moving forward. The “coverage ratio” is the de facto standard for measuring this and is calculated by:
Typically, investors want to see a coverage ratio of anywhere from 1.2 to 1.5 in addition to growing quarterly distribution payments.
Posted in MLP Metrics | No Comments »
Monday, October 29th, 2007
Boardwalk Pipeline (NYSE: BWP) posted higher Q3 results Monday. Net income rose to $40 million ($0.35 per common unit) vs. $30.6 million in Q3 of last year, beating analyst expectations of about $0.28 per unit. The MLP also declared an increase in distributions to $0.45 per unit, which is about 16% higher than Q3 of 2006. The BWP earnings call is scheduled for 9 AM EST and can be found at the link below.
Related Links:
BWP Q3 Earnings Call
Posted in Midstream MLPs | No Comments »
Sunday, October 28th, 2007
Whether you are dealing with stocks or MLPs, one thing is clear: cash is king. Stock investors typically use a metric called “Free Cash Flow” as a gauge of a company’s ability to generate cash (after adjusting for expenses relating to maintaining its assets). This cash can then be used to fund additional projects or pay out dividends. Similarly, MLP investors use Distributable Cash Flow (DCF) as a measure of cash available to distribute to unitholders or fund growth.
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Posted in MLP Metrics | 1 Comment »
Wednesday, October 24th, 2007
Kinder Morgan announced its 30th distribution hike since 1997, increasing distributions to LP unitholders 9% to $0.88. This puts the MLP on track to exceed its annual budget for cash distributions of $3.44. Further, KMP expects the Rockies Express - West pipeline to begin service on Jan. 1, 2008. The project is part of a broader trend toward developing midstream assets in the area, as MLPs seek to capitalize on the lack of existing pipeline infrastructure.
Posted in Midstream MLPs | No Comments »
Monday, October 22nd, 2007
Houston based MLP Plains All American Pipeline LP (NYSE: PAA) announced a quarterly distribution increase of $0.09 to $0.84 payable on November 14, 2007. The increase represents a 12% growth in distributions to LP units (vs. November 2006), and is the 14th consecutive distribution increase by the partnership. This brings 2007 quarterly distributions to $3.28 per unit, and will put the MLP above its annual distribution increase target of 14%.
Posted in Midstream MLPs | No Comments »
Sunday, October 21st, 2007
One of the largest MLPs, Enterprise Products Partners LP (NYSE: EPD), increased its quarterly distribution almost 7% from $0.46 in Q3 2006 to $0.49 in Q3 2007. According to the CEO, Michael Creel, it is the MLP’s 22nd distribution increase since its founding in 1998. The announcement comes ahead of EPD’s Q3 earnings announcement and subsequent analyst call on October 25th.
EPD provides a variety of midstream services including oil & natural gas transportation, gathering, processing, storage, as well as natural gas liquids (NGL) fractionation. The Houston, Texas based company has a market cap of almost $14 billion, and an enterprise value (EV) of almost $19 billion.
Related Links:
Enterprise Products Partners Homepage
Posted in MLPs, Midstream MLPs | No Comments »
Friday, October 19th, 2007
Tortoise Capital, a leading MLP investment and portfolio management firm, offers several practical reasons why Energy Infrastructure Master Limited Partnerships have a bright future. They make some brief, yet compelling points - I have summarized and expanded upon them below:
Income & Growth Upside
Energy Infrastructure MLPs distribute most of available cash flow to LP unitholders. As their earnings increase through organic and acquisition growth, distributions to investors will continue to grow. This is especially true as larger petroleum companies sell off midstream assets to MLPs (which purchase them at favorable valuations).
Stable Cash Flow
MLPs typically operate in the midstream energy space (transport via pipeline, etc.) which is a fee-based model. That means in boom or bust cycles they will generate cash flow even with fluctuating commodity prices. What does that mean in layman’s terms? If the economy is in a slump or booming, and whether oil or natural gas prices are high or low, these commodities will still need to get from point A (the well) to point B (the customer).
High Barriers to Entry
If you’ve ever taken a business or economics course you are probably familiar with this one. A high barrier to entry means that potential competitors will think twice before attempting to enter a market, because market entry requires significant spending. This makes sense: it takes a lot of capital, time, and skill to build and operate pipelines and other midstream assets.
Big Institutions Have Been Slow to Invest
Because of several different tax implications, larger institutions have been slow to invest in the MLP space. Mutual funds have avoided them because of timing issues with tax filing, while pension funds, endowments, etc. want to avoid the tax implications of “unrelated business taxable income” or UBTI. Bottom line: these don’t impact individual investors as much. However, if and when these larger players enter the market current investors should benefit from increasing market capitalization.
Posted in MLP Investing, Midstream MLPs | No Comments »
Thursday, October 18th, 2007
Targa Resources Partners, LP (NASDAQ: NGLS) has been added to the Alerian MLP Select Index as of September 20th. Targa provides midstream gas and natural gas liquids (NGL) services including gas compression, treatment, processing as well as NGL fractionation.
Targa Resources, Inc. (37% owner of Targa Resources Partners, LP) was founded in 2004 with the help of Warburg Pincus. Warburg Pincus retains 74% ownership of Targa Resources, Inc., with the balance of ownership held by Merrill Lynch and the Targa management team.
Related Links:
Targa Resources Partners, LP
Posted in Industry News | No Comments »
