Comparison Of Selected Performance Metrics For 9 MLPs

|
Includes: BPL, BWP, EPD, ETP, KMI, MMP, PAA, SPH, TRGP
by: Ron Hiram

Summary

Nine MLPs are compared based on selected metrics including total returns, valuation multiples based on EBITDA and DCF, and leverage ratios; best and worst performers are highlighted.

The MLP selection process is not formula driven; highest total return performers are not necessarily those providing the highest yields, best DCF coverage or lowest leverage.

The tables help put performance in perspective for the selected measurement periods but must be accompanied by assessment of many additional factors.

This article provides selected data points comparing nine master limited partnerships ("MLPs") that I follow fairly closely:

Buckeye Partners (NYSE:BPL)

Boardwalk Pipeline Partners (NYSE:BWP)

Enterprise Products Partners (NYSE:EPD)

Energy Transfer Partners (NYSE:ETP)

Kinder Morgan Inc. (NYSE:KMI)

Magellan Midstream Partners (NYSE:MMP)

Targa Resources Corp. (NYSE:TRGP)

Plains All American Pipeline (NYSE:PAA)

Suburban Propane Partners (NYSE:SPH)

Though not structured as MLPs, I include KMI and TRGP (and refer to them as MLPs) given that their businesses and operations do not differ from those of midstream energy MLPs. Where possible, I benchmark the data against the Alerian MLP Index that is comprised of 44 of the most prominent energy MLPs.

The Alerian MLP Index is a float adjusted, capitalization-weighted index, whose constituents represent approximately 85% of total float-adjusted market capitalization. It is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX).

Table 1 provides the most recent closing prices and compares current distribution or dividend yields to yield levels as of the beginning of 2016, as of 1 year ago, and as of 2 years ago:

Table 1: Prices and Yields. Source: www.alerian.com, www.google.com/finance, and author calculations; AMZX data as of 9/2/16.

Table 2 compares year-to-date total return and its components:

Table 2: Year-to-date Total Returns. Source: www.alerian.com, www.google.com/finance and author calculations; AMZX data as of 9/2/16. Returns are for the entire period (not annualized).

Year-to-date results have done much to mitigate the damage experienced over the past year. Table 3 shows one-year total returns and its components:

Table 3: One-year Total Returns. Source: www.alerian.com, www.google.com/finance, and author calculations; AMZX data as of 9/2/16. Returns are for the entire period (not annualized).

MLP prices peaked around August 2014. Investors who initiated positions around that time have, for the most part, experienced severe losses. Table 4 compares the two-year total return and its components:

Table 4: Two-year Total Returns. Source: www.alerian.com, www.google.com/finance, and author calculations; AMZX data as of 9/2/16. Returns are for the entire period (not annualized).

For ease of comparison, Table 5 summarizes total returns for the periods under review:

Table 5: Total Returns summarized. Source: www.alerian.com, www.google.com/finance, and author calculations; AMZX data as of 9/2/16. Returns are for the entire period (not annualized).

Overall, for the periods under review BPL and BWP appear to be the best total return performers.

Table 6 presents valuation ratios expressed as a multiple of each MLP's current enterprise value over its Adjusted EBITDA in the trailing twelve-month period ("TTM") ending 6/30/16. I further adjusted the Adjusted EBITDA of ETP and PAA by subtracting Incentive Distribution Rights ("IDR") payments. IDRs siphon off a significant portion of cash available for distribution to limited partners. The multiples would not be comparable absent these further adjustments. The other MLPs either have no IDRs (EPD, KMI, MMP, TRGP, SPH) or have 'out-of-the-money' IDRs .

Table 6: Valuation multiples based on EV and TTM EBITDA; figures are in $ Millions except ratios. Source: company 10-Q, 10-K, 8-K filings and author estimates.

MMP and EPD currently trade at the highest EV/EBITDA multiple, while BWP and TRGP at the lowest.

Table 7 presents valuation ratios expressed as a multiple of each MLP's current total equity value over its distributable cash flow ("DCF") in the TTM ended 6/30/16. Reported DCF may differ from sustainable DCF for a variety of reasons. Some relate to investments in working capital, others to proceeds of asset sales, foreign currency adjustments and losses from derivative activities. These are reviewed in an article titled " Estimating sustainable DCF-why and how". I show ratios based on both reported and sustainable DCF.

Table 7: Valuation multiples based on DCF; figures are in $ Millions except ratios. Source: company 10-Q, 10-K, 8-K filings and author estimates.

Note 1: TTM DCF actually reported is $1.53 billion higher reflecting sale of the Offshore Pipelines & Services segment in 3Q15

Note 2: Before reduction for amounts distributed to affiliated partnerships

Note 3: Does not report DCF

MMP and BPL currently trade at the highest MV/R-DCF multiple, while ETP and PAA trade at the lowest. MMP and SPH currently trade at the highest MV/S-DCF multiple, while ETP, BWP and TRGP trade at the lowest.

Distribution coverage and leverage are also important considerations in the MLP selection process. Table 8 presents distribution coverage ratios expressed as a multiple of DCF (on both a reported and sustainable basis) over distributions actually made in the TTM period ending 6/30/16.

Table 8: DCF coverage; figures are in $ Millions except ratios. Source: company 10-Q, 10-K, 8-K filings and author estimates.

Note 1: For ratio purposes, I excluded from DCF the $1.53 billion from the sale of the Offshore Pipelines & Services segment in 3Q15

Note 2: Ratios reflect DCF reductions for amounts distributed to affiliated partnerships

Not surprisingly in view of their ~75% cut in distributions, BWP and KMI currently provide the highest coverage, both on a reported and sustainable DCF basis. The poorest coverage is provided by PAA, SPH and ETP.

Table 9 presents leverage ratios expressed as a multiple of enterprise value over EBITDA (both Adjusted and unadjusted) in the TTM period ending 6/30/16.

Table 9: Leverage; figures are in $ Millions except ratios. Source: company 10-Q, 10-K, 8-K filings and author estimates.

Adjusted EBITDA is a non-GAAP measure that can differ materially from EBITDA because significant expenses (such as equity-based compensation, inventory and foreign currency revaluations, acquisition related expenses, and derivative losses on commodity transactions) that management deems as not indicative of core operating results and business outlook can be added back. MLPs with large gaps between EBITDA and Adjusted EBITDA require far greater scrutiny by investors in order to assess the quality of the numbers reported.

MMP and BPL have the lowest leverage, while ETP and KMI are the highest levered MLPs in the group.

The selection process for MLP investments is not formula driven. The highest total return performers are not necessarily those providing the highest yields, best DCF coverage or lowest leverage. The period of measurement plays a significant role in the relative performance. Tables such as those above can help put performance in perspective, but must be accompanied by assessment of many additional factors.

Disclosure: I am/we are long EPD, MMP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.