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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (49990)11/8/2012 10:04:57 PM
From: Spekulatius  Read Replies (1) of 78731
 
LNCO is the General Partner of LINE LP. as such, it represents a leveraged bet on LINE's expansion and distribution growth. You are correct that LNCO has better return potential but also much higher risk. I have not studied LNCO before but it does look interesting, so I will have a look. Generally speaking, I don't like E&P 's incorporated as MLP because E&P need to spend a lot of Capex to replenish reserves while they are at the same time forced distribute their earnings. This can lead to a situation where a falling commodity price causes serious issues, since raising money via a secondary may not be possible at reasonable conditions.

As far as SEP is concerned, this MLP generates 2.5$ in distributable cash (~8.5%, indicating a good coverage of the 6.8% distribution ) and about 11.5x EV/EBITDA. This is not extremely cheap but SEP has very low leverage (BBB+credit rating) and virtually all the revenues are fee based, so there is no direct commodity exposure whatsoever. This is quite differently from it's sister MLP DPM, which processes NG and is very dependent on liquid prices for example. SEP is one of the highest quality and safest MLP's due to low leverage, the high credit rating of it's GP and the lack of commodity price exposure.
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