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  • MLP E&P Stats As Of 4-11-14 [View instapost]
    memshu - I am not an accountant. That said, "Depletion, depreciation and amortization" are non-cash charges. There are several MLPs that have a negative EPS and a positive DCF.

    My DCF projections are consensus numbers - or average numbers - based on projections from nine different brokerages. There are a few occasions when a projection is so far from the norm that it is ignored - but those occasions are few.

    The first three months of 2013 I was working on BDCs - and did not work on MLPs. I then spent two months working on my MLP data to expand my coverage universe. My first 2013 MLP update was done in June. That is why there are no numbers generated during those months.
    Apr 12 09:11 AM | 2 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    Elliot_Mllr wrote "There are some smaller but interesting niche midstream MLPs missing from your analysis."

    I need to have good DCF projections before I can start any analysis. I want to have DCF projections from three different sources before I add a MLP to my coverage universe. And many of the smaller - or newer - MLPs lack the coverage to generate three projections. I also want two years of history before I add a MLP to my coverage universe. It sounds too obvious to say -- but you can learn a lot from "history" (grin). And that keeps some MLPs out of my coverage universe.

    This numbers nerd also wants to try to have "universe consistency". When I added high growth EQM, OILT and TLLP to my coverage, I needed to balance that with some slower growing and higher yielding MLPs to balance it. If I did not, I would have falling sector average yields (and yield spreads) in my data. Unbalanced additions would generate a false timing signal that the sector is over-valued. So I needed to add AMID and BKEP (that only has two DCF projections) for "balance". And I needed to keep TCP - even though I now lack enough DCF projections to produce good numbers for that MLP.

    But -- now AMID has a new GP with the expectations that the GP will produce drop downs - and more growth. And the perception of BKEP could morph into a higher growth MLP. So I may need to only add slower growth MLPs to my coverage next year. And the reason I have a large universe is to find growth opportunities.

    Elliot also asked about IDRs and their impact on CAGRs. It is logical that IDRs should have a significant impact and must be an important factor. But I listen to the numbers - not logic. If IDRs are such a major handicap, then why do MLPs like PAA, SXL and WES have such great growth histories and current growth projections? In some cases, general partners are "drop down" sugar daddies to their MLPs. It is counter-intuitive, but the more I ignore IDRs - the more I understand what is going on.

    I make my conservative CAGR projections based on DCF growth, the distribution/DCF ratio, distribution growth inertia, and consensus analyst CAGR projections. The IDR factor is already in those numbers. Nothing new needs to be added to the mix. So I don't.
    Apr 5 02:20 PM | 1 Like Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    My due diligence on MLPs began 9 years ago - in 2005. At that point in time, the analyst were projecting SLOWING distribution growth for all the companies five years out from that point in time. That "slowing" did not happen. Fracking happened.
    Right now, our energy infrastructure only serves US customers. Will the US start to become an energy supplier to the world? Maybe. Will there be a new technology that replaces fracking - and allows for even greater extraction of molecules from new and existing fields? Maybe. Could fracking be linked to cancer and/or earthquakes - and everything slow dramatically? Maybe.
    There is no certainty how long the good times will last. There is even a possibility that "the best is yet to come". I keep my allocation to MLPs around 25% because of the kind of fears you have. I will wish it was lower if bad things happen - but (1) I believe they won't and (2) I can survive if they do. I do stay informed about (and lightly invested in) BDCs - because they are still my "plan B" for income, if things go wrong for MLPs. For the last ten years, I wish that my allocation had been higher.
    Apr 5 09:19 AM | 3 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    DavePHD wrote " I was really thinking about conditions worse than the typical downturn, more like a bubble breaking, perhaps a 20% to 30% drop in the DOW, not necessarily caused by earnings downturn but more by panic selling."

    I am not sensing much interest in this tangent. If I did, I would write a long article. 2008 is a year that provides a lot of dramatic (or extreme) data on this point.

    Let's agree that investment grade midstream large caps like EEP, EPD, ETP, KMP, MMP and PAA are the safer group --- and the non-investment grade gathering and processing MLPs like APL, DPM, MWE, NGLS and XTEX are the riskier group. Here are the changes in unit prices during 2008:

    EEP (-49%), EPD (-35%), ETP (-37%), KMP (-15%), MMP (-30%) and PAA (-33%). Safer group average -33%
    APL (-86%), DPM (-79%), EXLP (-65%); MWE (-76%), NGLS (-74%) and XTEX (-86%) - riskier group average -78%

    For the existing E&Ps: BBEP (-76%), EVEP (-55%) LINE (-40%) and VNR (-63%) - average was -59% -- and I weeded out CEP and QELP from the numbers to help made the group look better. Did the E&Ps do better because they had needed commodities in the ground? Well, they did do better than the G&Ps.

    The bubble had started leaking during 2007. Their were several price/DCF ratios that failed to make sense due to the selling in 2007. A few MLPs had ratios in the 13s - most in the 12s - a few a bit lower. One could make a decent case that "growth" (or risk) was not showing up in the earning ratios (or the price/DCF numbers) at the start of 2008.

    I believe the data supports my theory that "risk matters". But I suspect I need to do a better job than this very brief description to make a convincing case.
    Apr 3 08:17 PM | 2 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    Davephd wrote " It is easier for the price of a high growth stock to fall than a high div stock."

    That is the consensus opinion. Everybody "knows" that. And everybody is wrong! The data fails to support that opinion. And here is why. (Note - if you have read and memorized my article of 9-23-2013 titled "Redefining Value Investing For MLPs" - you already know what follows.)

    Quote from that article: "2. The argument that a low price-to-earnings ratio stock would have less to fall in a market downturn is wrong because downturns strongly tend to be the result of an earnings downturn. Stocks with lower price-to-earning ratios merit those lower ratios due to having higher earnings volatility. That volatility results in them having a high required rate of return. Having a higher rate of return results in those lower price-to-earning ratios and higher yields. When earnings fall, low Price/DCF stocks strongly tend to have earnings that fall more."

    Now substitute "stocks with higher yields" for "stocks with higher price to earning ratios".

    Davephd - I hope you do not believe I am picking on you, just because you "threw in" a comment that expresses an opinion that almost everyone else believes. This writer (who is now in real danger of sounding like an arrogant SOB) strongly believe that the average retail investor fails to understand a thing about risk and its role as a valuation metric for equities. Even in my article on risk - the comment section was full of questions of tangential issues. You touched a nerve with your comment. I strongly believe that the retail investor needs to put on the old 45 from Archie Bell and the Drells; do some lyric substitution; and do the "Smarten-up".
    Apr 3 02:13 PM | 2 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    My low weighting in E&Ps has pushed updating their numbers to the bottom of my to-do list. For example, I own shares in PAGP - but I have not added it to my GP coverage universe. I have not started my "Newbies from 2013" coverage for 2014 - and there are a lot of high growth newbies that need to be followed. I have started - but not completed - an expanded coverage universe of "grocery list" stocks. So much to do. So little time. Sorry about that.
    Apr 3 01:39 PM | 1 Like Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    ATrautmann asked "What about the GPs (or the IDR owning general partners)?"

    If one is going to beat the Alerian index, then one has to own some GPs. Close to 22% of my total MLP portfolio is in GPs. If I did not need the immediate income, that allocation would be much higher.

    At this point in time, I can not tell the GP story without using a heck of a lot of numbers. And I am lacking a headline that will draw readers. I am not interesting in doing a labor intensive article that few will read and even less will understand. For example, I would compare the CAGR vs. CAGR ratio (of the GP vs. the MLP) to the yield vs. yield ratio to produce valuation judgements. That is "can of worms" number one. I would also need to write on the topic of "portfolio CAGRs" once again. Few people do that calculation. And I do not believe I convinced those who project their portfolio CAGR numbers that LTM "dividend growth inertia" is a terrible way to do that calculation. That is "can of worms" number two.
    But if 40 or so readers respond to a "like" to your question, then I will re-think the situation. Thanks for inadvertently posting a question that I can use as a "poll". This comment section was lacking a poll - and I hated that situation.
    Apr 3 11:16 AM | 13 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    Value Doc wrote that he has projections from Ron Hiram (posted on SA) of "sustainable DCF" for EPD of $2.83 for 2012 and $3.88 for 2013. And he has Credit Suisse's current preliminary projections for 2014, 2015, 2016, and they are $4.48, $4.89 and $5.18.

    I have 9 projections making my consensus DCF actual and projection numbers for 2013 through 2015 - and 11 for 2011 and 2012. A $2.83 DCF number for EPD in 2012 is more than a dollar lower than my consensus number - and close to $0.60/unit lower than the lowest number. It is an assessment of 2012 DCF that is so far outside the consensus, that I would call it a bad number. We agree on the 2014 DCF projection for Credit Suisse - but that projection is more than $0.40 higher than the second highest 2014 projection. Due to EPD having a history of out performing beginning of the year projections - an outside the consensus number in the here and now could turn out to be a good projection. But still . . . . it is a way outside the consensus number.

    Do I really need nine different projections for EPD? No. But I do need numbers from nine different sources in order to have three sources of DCF projections from some of the lesser covered MLPs. And if you have projections from only two sources, you can end up with consensus projections that are no where close to the real consensus number. I know that from years of experience doing this task. I hope that my summation does not come across as overly harsh. But in summation, I believe that your current lack of access to a sufficient variety of sources is causing you to make some "garbage in - garbage out" kind of calculations. I have been there and done that. Or I could better phase that thought - I have been there and was not aware that I was doing that.

    Having only one or two projections is a very dangerous thing. This is practically true when it comes to MLPs - where projections come in such wide varieties. Let me provide an example where the situation is 180 degrees in the opposite direction - Health Care REITs have a history of providing FFO and FAD projections (in per share numbers) at the beginning of the year. Those projections strongly tend to match the analyst projections. Beginning of the year projections have a history of matching the end of the year actual numbers. One source of info on Health Care REITs can be enough - because all the projections are close to similar. You can tell this from the low spreads between the high and low projections. And at the end of the year, everyone can agree on very close to the same numbers for that year. What a tame a civilized world that is. In contrast, the MLPs are the wild, wild west.

    Value Doc - I do not believe we share the same perception as to the relative tameness of many other sectors compared to MLPs -- or selected MLPs and there relative tameness compared to other (or typical) MLPs. So how can I expect you to value EPD more highly because of its lack of DCF projection disappointments? I could convince you if I shared the DCF projections from all the brokerage reports that I have. But if I did that - I would probably get sued (along with Seeking Alpha) and never publish again. I hope I can nudge you towards a "trust, but verify" mode as to my testimony. Make an effort to find one friend, one neighbor, one relative and one co-worker with access to brokerage reports that are different than your own. Go to the library for the Value Line CAGR projections. Look up the projections from the "CCC list" done by David Fish.

    I hope the above does not come off as a "nobody knows the trouble I've seen" kind of whining. But no one has reported that they have gone to that degree of effort - and then shared their insight on what they have learned from doing that task. I am looking for someone to replicate my effort and verify my unique findings.
    Apr 3 08:39 AM | 4 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    Value Doc wrote " In 2011, the S&P500 returned zilch. What did the "average" MLP return in 2011?"

    From my historical stats, the SPY had a total return of 1.85% compared to an average (of AMJ and MLPI) total return of 13.13%. But MLPs still had larger IOUs from their drops during the credit crisis. I know that time frames are subjective as to the question of "what is the most relevant time frame?" I do not have an answer to that question. But psychologically, I am a "what have you done for me lately?" kind of guy.

    Value Doc wrote EPD's "growing the DCF (even if not the distribution, for now) at a very high clip (37% y-o-y)."

    I am not in agreement with your numbers. I will take it by year:
    2010: 21.92% DCF growth per unit
    2011: 11.99%
    2012: negative 2.82%
    2013: 14.49%
    projected 2014: 4.56%
    projected 2015: 6.54%
    average for the period -- 9.45%.
    If I were to use a 8 year period, the growth would be lower. If I were to use an 9 year period, the growth would be higher.
    My consensus DCFs are derived from lots of inputs. Brokerage analysts different on their historical DCF numbers. So two guys making their own consensus could differ due to their "inputs". But even with that explanation for why we differ - that still fails to account for the degree to which we differ.

    Value Doc wrote "I like your hard-headed analytical focus on the numbers but would caution anyone reading this to look behind the numbers a little more closely rather than invest like a computer. The "story", the risk profile, the asset map, sub-sector fundamental backdrop, and intangible management quality / track record should be integrated into the hard quant analysis. "

    We both agree the story is important. I believe that the story puts meat on the bones of "the numbers'. But what does one do when the story and the numbers are in conflict? With MWE, I am betting on the story. But almost all of the time, I bet on the numbers. And there is a reason for that. Once I began betting on the numbers, I became a wiser investor that had better returns. My due diligence had more purpose. Once due diligence became a search for numbers to justify my CAGR projections and RRR assessments, my due diligence had significantly more focus. I would say you are correct that most people should not try to "invest like a computer".
    But I also believe that there are a sub-set of investors who have the ability to listen to the numbers - and for that group of investors, the idea of "investing like a computer" is an attractive alternative. It is my personal testimony that investing more like a computer works for me - compared to the results I had before the transformation.
    Apr 3 01:09 AM | 4 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    BrutalHonesty asked "Do you think a total return of 10% is within reason for the next few years?"
    There is no telling what rising interest rates will do to the price of equity income stocks. History would indicate that distribution growth stocks should be relatively OK - while low or no growth stocks would be hurt worse. The wider than history spread to the ten year (based on sector average yield) makes me expect that some of the headwinds are already priced in. On the other hand, the raw "sector average yield" is much lower than average - and that is a bad omen.
    While I would rather be in "equity income" than bonds, the next few years should be a tough environment. I would not feel comfortable with a 10% total annual return expectation over the next three years.
    I also can not offer a response on the size of the account one must have to access brokerage research.
    Apr 2 09:10 PM | 2 Likes Like |Link to Comment
  • 6 Basic MLP Lessons From The Q1-14 Data [View article]
    BrutalHonesty asked " Do you have a few brokers which you think provide the best research and estimates of DCF for MLPs?"
    It is my opinion that Wells Fargo and Morgan Stanley provide the best coverage -- closely followed by Bank of America, Barclays, Credit Suisse, JP Morgan and RBC. Also worthy of a mention is Raymond James and Goldman Sachs. Citi has a new team on board - and that team lacks a track record.
    I think it is very important to have access to reports from multiple brokerages. So I have accounts at multiple brokerages to gain that access. I also harvest CAGR projections from multiple sources. I visit the library to get projections from Value Line. The David Fish "CCC list" provided by my fellow Seeking Alpha contributor is a valuable resource. I specifically dislike the CAGR projections one finds for MLPs at Yahoo Finance - but the Yahoo projections in other sectors have been in line with projections from other sources.
    Apr 2 04:02 PM | 3 Likes Like |Link to Comment
  • Should You Invest With A Property-Type Bias? [View article]
    I had intended to post my historical data on sector average yields - but I posted historical data on sector average Price/FFO ratios. I have posted the data on historical yields in my InstaBlog here at Seeking Alpha - and I have requested a correction to the article. I have current - or data through 3-19-14 - in the same posting.
    For those wanting to see more data on historical earnings accuracy in other sectors, I have included a spreadsheet on that from my "grocery list" or consumer stables stocks in a different InstaBlog message today. I will work on updates to two other sectors. I will have those InstaBlog postings tomorrow.
    Mar 19 05:22 PM | 1 Like Like |Link to Comment
  • Should You Invest With A Property-Type Bias? [View article]
    I am going to interpret StPeteMike's question as if he were requesting a definition of cap rates. And I had intended to include a short definition of cap rates in the article. I went to Wikimedia to find the following information.

    A cap rate - or capitalization rate - is equal to annual net operating income provided by the property divided by the cost of the property. For example, if a building is purchased for $1,000,000 sale price and it produces $100,000 in positive net operating income (the amount left over after fixed costs and variable costs is subtracted from gross lease income) during one year, then: $100,000 / $1,000,000 = 0.10 = 10%

    Capitalization rates are an indirect measure of how fast an investment will pay for itself. In the example above, the purchased building will be fully capitalized (pay for itself) after ten years (100% divided by 10%). If the capitalization rate were 5%, the payback period would be twenty years.

    Cap rates provide a tool for investors to use for roughly valuing a property based on its Net Operating Income. For example, if a real estate investment provides $160,000 a year in Net Operating Income and similar properties have sold based on 8% cap rates, the subject property can be roughly valued at $2,000,000 because $160,000 divided by 8% (0.08) equals 2,000,000.
    Mar 19 12:59 PM | 5 Likes Like |Link to Comment
  • Should You Invest With A Property-Type Bias? [View article]
    This is the end of the poll questions. Once again - PLEASE do not respond to the poll questions with a text reply. Signal your agreement with the posted response with a "like".
    Mar 19 08:59 AM | 5 Likes Like |Link to Comment
  • Should You Invest With A Property-Type Bias? [View article]
    Poll Question 3 - I already knew about earnings projection accuracy.
    Mar 19 08:57 AM | 4 Likes Like |Link to Comment
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