In December, the CEO of Access Midstream Partners LP (ACMP) bought 9,000 shares at the average price of $33.6 per share, with the total transaction value of more than $300,000. On the same day, the Chairman of the Board also purchased $200,000 shares value. These recent purchases by the company's CEO and Chairman might indicate their bullish attitude towards this master limited partnership. Should we follow their moves into this stock? Let's find out.
Cash Cow With High Dividends
Access Midstream Partners is a master limited partnership which owns and operates midstream energy assets in several states including Kansas, Oklahoma and Arkansas. The company reports to have more than 3,900 miles of active gathering lines and facilities to provide services to 5,450 wells, with the gathering capacity of 2.8 billion cubic feet of natural gas per day. For the last 5 years, it has generated an increasing operating cash flow, from $94 million in 2007 to $399 million in 2011. Because of the significant capital spending, its free cash flow has been negative. In 2011, the free cash flow was -$20 million. In the last 3 years, EPS has been on the rise, from $0.78 in 2010 to $1.37 last year. Trailing twelve months, its EPS was $2.76. It has also paid quite decent dividends of $0.22 per share in 2010 and $1.43 per share in 2011.
CEO and Chairman Share Purchases After Chesapeake Midstream Acquisition
On December 24th, as mentioned above, Michael Stice the CEO bought 9,000 shares of Access Midstream with the total transaction value of $302,400. On the same day, another insider, David Daberko, the chairman of the board, bought 6,000 shares at $33.199 per share, with the total value of nearly $200,000. The insider transactions happened after it acquired Chesapeake Energy's (CHK) midstream operation, Chesapeake Midstream Development. The deal has made Access Midstream the largest gathering and processing master limited partnership in the US, with 10 basins, 8,603 wells and $6 billion in total invested capital.
A Sweet Deal for Both Parties
The price tag for Chesapeake Midstream Development was $2.16 billion. The EBITDA, generated by Chesapeake Midstream, would be around $250 million - $275 million. Thus the deal is valued at 7.8x - 8.6x 2013 EV/EBITDA. After the acquisition, Access Midstream expected to generate $800 million to $850 million in EBITDA in 2013, 45% higher than pre-acquisition's EBITDA. With a 6.78x EV/EBITDA, Chesapeake Energy's valuation is lower than the deal's EV multiples. Thus, it seems to be a sweet deal for Chesapeake Energy, the seller.
To partially fund the deal, Access Midstream recently issued $1.4 billion senior notes due 2023 at a rate of 4.875%. The remainder was funded via sponsor equity commitments. By taking an additional $1.4 billion debt, the current enterprise value would be $7.62 billion. With the expected EBITDA of $800 million - $850 million, its valuation would be 8.96x - 9.52x EV/EBITDA. This is lower than the current 16x EV multiples of Access Midstream's. That is why it also seems to be a sweet deal for Access Midstream, the buyer.
Generally, Midstream limited partnerships had high EV multiples in the market, while they offer juicy dividend yields to investors. With a total market cap of $1.72 billion, Atlas Pipeline Partners (APL) is valued at 14.36x EV/EBITDA and is paying a dividend yield of 7.1%. DPM Midstream Partners (DPM) is the most expensive among the three, with 22.91x EV multiples, but it pays lower dividend yield of 6.4% compared to Atlas.
As mentioned above, the acquisition of Chesapeake Midstream seems to be beneficial for both buyer and seller. For Access Midstream, the company purchased good assets at single digit EV multiples. For Chesapeake Energy, their assets were sold at higher multiples than its own market valuation.