10% Yield, 23% DCF Growth In 2019, More Growth Due In 2020: PBF Logistics LP

Summary

• PBFX yields 9.94%, with 1.16X distribution coverage in Q4 '19.
• DCF grew 22.82% and adjusted EBITDA grew 26.95% in 2019.
• Management is guiding to ~21% EBITDA growth in 2020, which implies DCF growth of ~14.5%.
• Distribution coverage should improve in 2020, as a result.
• This idea was discussed in more depth with members of my private investing community, Hidden Dividend Stocks Plus. Get started today »

Profile:

PBF Logistics LP (PBFX) owns, leases, acquires, develops, and operates crude oil and refined petroleum products terminals, pipelines, storage facilities, and other logistics assets. PBF Logistics GP LLC serves as the general partner of PBF Logistics LP. The company was founded in 2013 and is headquartered in Parsippany, N.J.

PBFX's assets serve its parent PBF Energy (NYSE:PBF), which is the fourth-largest US refiner by throughput capacity:

(Source: PBFX site)

In addition to growing via dropdowns from PBF, PBFX's management also has worked on organic internal growth projects, from which it expects to earn ~$95M during the next 4-5 years.

(Source: PBFX site)

Management also increased third-party revenue during the past few years, although its minimum volume commitments, MVC's, from PBF still contribute the overwhelming majority of its revenues:

Parent PBF Earnings:

Parent PBF reported earnings this week. Adjusted EBITDA for Q4 2019 was $272M, and $872M for full-year 2019, lower than 2018, mainly due to non-cash LCM inventory adjustments. LCM is a GAAP requirement related to inventory valuation that mandates inventory to be stated at the lower of cost or market. PBF's inventories are stated at the lower of cost or market.

(Source: PBF site)

PBF had a net debt/capitalization ratio of 25%, as of 12/31/19, slightly better than its 27% figure for 12/31/2018:

(Source: PBF site)

2019 PBFX Earnings:

PBFX also just reported Q4 '19 earnings this week, with good growth: Adjusted EBITDA and DCF grew 32%.

"For the year-ended December 31, 2019, the Partnership reported net income attributable to the limited partners of $100.3 million, or $1.71 per common unit, generated cash from operations of $149.0 million, EBITDA attributable to PBFX of $184.8 million, Adjusted EBITDA of $201.0 million and distributable cash flow of $137.1 million.

Included in reported results for the year-ended December 31, 2019 are $16.2 million, or $0.28 per common unit, of transaction-related expenses, non-cash unit-based compensation, environmental remediation costs associated with the East Coast Terminals and a true-up for revenue associated with the Paulsboro Natural Gas Pipeline due to a reduction in its pipeline tariff based on the lower than budget project costs."

The new East Coast Terminal deal with Maersk began in October 2019. This deal will aid PBFX's growth in 2020:

"On Oct. 1, 2019, PBF Logistics commenced operations at CPI Operations LLC, a PBF Logistics LP terminal facility ("East Coast Storage assets") in New Jersey, United States, pursuant to a previously-announced agreement with A.P. Moller - Maersk. PBFX commenced processing crude oil sourced by Maersk and providing products per the arrangement.

The agreement enables Maersk Oil Trading to supply IMO 2020-compliant 0.5% marine fuel to its customers on the U.S. East Coast. Annual production will be around 1.25 million metric tonnes, the equivalent of approximately 10% of A.P. Moller - Maersk's annual fuel demand."

The CEO said "To support the continued growth of the Partnership, we believe that a disciplined distribution strategy will continue to reward unitholders while allowing the Partnership to build coverage, de-lever the balance sheet and internally fund growth opportunities." (Source: PBFX site)

PBFX acquired the remaining 50% of PBF's Torrance facility in Q2 '19, which helped to ramp up its earnings in 2019.

The rise in EBITDA and DCF were particularly strong in Q3 and Q4 '19, with EBITDA growing ~42% in Q3 '19 and ~32% in Q4 '19; and DCF growing ~38% in Q3 '19 and ~32% in Q4 '19:

PBFX also did a deal with PBF to eliminate the Incentive Distribution Rights, IDRs, in addition to issuing 6.85M units in April, which accounts for the big rise in unit count in 2019, and slight decline in distribution coverage.

Looking forward, management said on the Q4 '19 earnings call that "We do not anticipate any requirement for equity during the course of this fiscal year, i.e., 2020 to be able to fund our internal projects."

2019 saw EBITDA growth of 26.95%, and DCF growth of 22.82%, net income growth of 5.93%, and 3.77% growth in distributions/unit.

Distributions:

Management raised the distribution again by $0.005, to $.52 for Q4 '19. The distribution is payable on March 17, 2020 to PBFX unitholders of record at the close of business on Feb. 25, 2020. The ex-dividend date is 2/24/20.

At $20.93, PBFX yields 9.94%.

Although PBFX averaged 1.06X coverage in 2020, its coverage in Q4 '19 was higher, at 1.16X, and it averaged 1.14X over the most recent three quarters. We expect trailing coverage to improve in 2020, (please see guidance section for more details).

Taxes:

PBFX issues a K-1 at tax time.

2020 Guidance:

Management guided to $225M in EBITDA for 2020, which would be more than 21% higher than the $185M in EBITDA that PBFX earned in full-year 2019.

The ratio of DCF to plain, unadjusted EBITDA for 2019 was 74%. Using that same ratio for 2020 gives us an estimate of $166.5M, (less an additional $9M in maintenance capex) would equal ~$157M in DCF for 2020.

Using the guidance for 62.9M in units for 2020, with a steady $.52 quarterly distribution, gives us ~$131M in 2020 distributions.

On the Q4 '19 earnings call, management said, "As of the fourth quarter of 2019, we intend to hold our distribution steady at $0.52 per unit per quarter. This distribution policy will continue to reward our unitholders, while providing the Partnership with additional financial resources to build coverage, fund growth and strengthen our balance sheet. We believe that this approach will benefit both the Partnership and unitholders in the long run."

If PBFX achieves $225M in EBITDA in 2020, and ~$157M in DCF, its distribution coverage would improve by ~13% to ~1.20X, vs. the 1.06X it had in 2019. In Q4 '19, PBFX's coverage was 1.16X, very close to that 1.20X 2020 coverage estimate:

(Source: PBFX site)

Valuations:

PBFX is getting premium valuations vs. other midstream firms that we cover due to its strong growth over the past few years and its prospects for continuing growth in 2020.

Analysts' Price Targets:

At $20.93, PBFX is 4.86% below analysts' lowest price target of $22.00, and 12.5% below the average price target of $23.92.

Performance:

PBFX is up 3.85% so far in 2020, and continues to outperform the Alerian MLP ETF (AMLP), and the broader Energy Select Sector SPDR ETF (XLE), while trailing the S&P.

Financials:

PBFX's EBITDA growth improved its net debt/equity leverage ratio by ~8% in 2019, bringing it to 3.93X. Its EBITDA/ Interest coverage improved considerably, to 4.81X, as did its ROE, which is much higher than peer averages.

Debt and Liquidity:

PBFX finished 2019 with just under $250 million in liquidity, including $35 million in cash and ~$212 million of availability under its revolving credit facility. Total debt was $802M as of 12/31/19.

Summary:

We rate PBFX a buy based upon its ongoing earnings growth, attractive yield and improving distribution coverage.

All tables by Hidden Dividend Stocks Plus, except where noted otherwise.

Disclosure: I am/we are long PBFX. 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.