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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (43192)	7/5/2011 6:20:30 PM
From: E_K_S	Read Replies (1) of 78717

Hi Clownbuck - Do you have an opinion on Spectra Energy Partners, LP (SEP)? Their 2010 annual report shows their EBITDA at $117.1M. The company's EV is $3.47B. That's 29.65x well above the 8x amount that you use as a benchmark value threshold. So I would assume you see SEP LP as grossly overvalued? However if I look at their forward PE of 17, a total LT Debt/ Annual Net Income of 4.5, selling just below 2x BV; the stock appears to me to be undervalued to it's peers and slightly overvalued to the rails (transportation of NG & Oil by rail). When you look at a niche player in the rail group (lessor of Oil & NG rail cars), GMT is equally profitable but carries much more debt than the pipeline companies. It's possible but not as cost effective to move NG & Oil by rail (ie GMT is one name). I have owned GMT for this reason. When I compared GMT's financials against several of these pipeline companies, the pipeline companies seemed to be a better value bet. Also, many of these pipeline companies own very valuable "right of way agreements" for their pipelines (both inter and intra state routes) that is an intangible asset not reflected in their BV. I think these right-of-way agreements are very valuable especially when pipe line capacities can easily be increased but no new land owner access rights are being obtained (just look at the trouble TransCanada Corp. (TRP) has had in building their pipeline). I think the market has undervalued these pipeline companies which in the future will be difficult to construct w/o new right-of-way agreements. It's almost like those companies that own these agreements can control the distribution of NG especially in those areas where all the new NG volume is being produced. FWIW sold my GMT and looking to buy one or more of the discussed pipeline companies. EKS

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