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.
