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"Kicking Myself" Shoes

|Includes:El Paso Pipeline Partners, L.P. (EPB)

I knew that EPB had a falling CAGR. I knew EPB had a poor distribution/DCF ratio. But only one brokerage gave EPB a forward CAGR in the twos. Since it was an outlier forecast - I failed to heed that warning. I sold my EPB today (Friday 12-06-13) - after it had already fallen 9% on Wednesday and 4% on Thursday. Below is my "Yield plus CAGR" spreadsheet from market's close on Thursday:

Yield + CAGR Total Return Expectations

 

 


Company Q4-13 Consensus Total Bonds DCF My Total Rtn Consensus Pr Impl Distrib
    Yield CAGR Return Ratings Accr RRRs - RRR Ratings CAGR / DCF
Large Cap Midstream
Buckeye BPL 6.46% 4.00% 10.46% BBB- 2.30 10.40 0.06 2.5 3.94 89.77
Boardwalk BWP 8.77% 1.50% 10.27% BBB 3.20 10.70 -0.43 2.9 1.93 104.93
El Paso EPB 7.47% 2.00% 9.47% BBB- 1.20 10.30 -0.83 2.9 2.83 95.59
Enbridge EEP 7.42% 2.70% 10.12% BBB 2.40 10.50 -0.38 2.5 3.08 97.93
Enterprise EPD 4.49% 6.70% 11.19% BBB+ 1.20 9.70 1.49 1.7 5.21 67.81
Energy Trans ETP 6.73% 3.50% 10.23% BBB- 3.00 10.70 -0.47 2.5 3.97 78.87
Kinder Morgan KMP 6.81% 4.50% 11.31% BBB 1.00 10.00 1.31 2.7 3.19 94.41
Magellan MMP 3.75% 8.80% 12.55% BBB 1.00 10.00 2.55 2.5 6.25 75.34
NuStar NS 8.80% 1.50% 10.30% BB+ 4.00 12.00 -1.70 3.3 3.20 114.36
OneOK OKS 5.56% 6.70% 12.26% BBB 1.50 10.50 1.76 3.0 4.94 88.15
Plains All-Am PAA 4.87% 8.50% 13.37% BBB 1.00 10.00 3.37 1.9 5.13 71.64
Williams WPZ 7.14% 5.40% 12.54% BBB 3.00 11.00 1.54 2.3 3.86 99.15

Average   6.52% 4.65% 11.17%         2.56

Company Q4-13 Consensus Total Bonds DCF My Total Rtn Consensus Pr Impl Distrib
    Yield CAGR Return Ratings Accr RRRs - RRR Ratings CAGR / DCF
Small Cap Midstream
BlueKnight BKEP 5.44% 9.00% 14.44% NR 4.00 13.00 1.44 3.5 7.56 47.57
Genesis GEL 4.21% 8.70% 12.91% BB- 2.70 11.80 1.11 1.8 7.59 70.37
Holly HEP 6.24% 6.00% 12.24% BB 1.30 11.20 1.04 3.3 4.96 87.56
Spectra SEP 4.88% 6.80% 11.68% BBB 2.20 10.50 1.18 2.9 5.62 72.46
Sunco SXL 3.71% 8.90% 12.61% BBB- 1.00 10.00 2.61 2.7 6.29 54.08
TCPipelines TCP 7.06% 3.00% 10.06% BBB 1.00 10.00 0.06 3.2 2.94 89.26
Transmontaigne TLP 6.17% 3.00% 9.17% NR 1.20 10.00 -0.83 1.7 3.83 72.22

Average   5.39% 6.49% 11.87%         2.73

Company Q4-13 Consensus Total Bonds DCF My Total Rtn Consensus Pr Impl Distrib
    Yield CAGR Return Ratings Accr RRRs - RRR Ratings CAGR / DCF
Gathering & Processing
Access ACMP 4.16% 9.60% 13.76% BB- 1.50 12.00 1.76 1.7 7.84 67.72
American AMID 7.60% 4.50% 12.10% NR 5.00 12.50 -0.40 1.4 4.90 80.09
Atlas Pipelines APL 7.27% 9.10% 16.37% B+ 5.00 13.50 2.87 1.4 6.23 83.22
Crestwood CMLP 7.42% 5.00% 12.42% B- 3.70 12.50 -0.08 2.1 5.08 80.60
DCP Partners DPM 6.14% 6.70% 12.84% BBB- 2.70 11.50 1.34 2.1 5.36 85.21
Eagle Rock EROC 11.03% 0.10% 11.13% B 5.00 13.50 -2.37 2.6 2.47 100.00
Exterran EXLP 8.00% 3.00% 11.00% B- 2.20 11.50 -0.50 2.5 3.50 79.03
Mark West MWE 5.16% 8.70% 13.86% BB 3.20 12.50 1.36 1.7 7.34 69.39
Targa NGLS 5.82% 6.90% 12.72% BB 1.70 12.20 0.52 1.9 6.38 84.44
Regency RGP 7.70% 4.00% 11.70% BB- 3.20 12.00 -0.30 2.6 4.30 88.68
Western WES 3.84% 9.30% 13.14% BBB- 1.70 11.20 1.94 1.9 7.36 77.59
Cross-Tex XTEX 5.09% 8.50% 13.59% B+ 4.00 13.50 0.09 2.3 8.41 82.50

Average   6.60% 6.28% 12.89%         2.02

Even after the dramatic fall in unit price, EPB still sold at a price-implied CAGR of 2.8% while next year's guidance is for growth that is just under 2%.

The moral of the story: CONTINUOUSS AND FREQUENTLY UPDATED due diligence matters. Due diligence updated less frequently is bad due diligence.

Disclosure: I am long CMLP, DPM, EPD, GEL, KMP, MMP, MWE, WES.

Stocks: EPB