SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Value Investing
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Spekulatius who wrote (51727)6/15/2013 2:04:33 PM
From: E_K_S1 Recommendation

Recommended By
ramsfan2ewe

   of 78774
 
Here is an interesting article on how different valuation metrics add up when evaluating similar MLP companies.

Key Metrics For Top 5 Pipeline MLPs In Alerian MLP Infrastructure Index

From the article:

EV/EBITDA

Their enterprise value to earnings before interest, taxes, depreciation and amortization (a way to compare valuation of companies with different levels of debt and different plant and equipment ages and structures) have been all over the lot. Right now MMP is the most expensive and KMR is the least expensive. EV/EBITDA does not incorporate growth into the formula.



I have been calculating $ Price/$EBITDA/share to come up with a comparable figure to see how much it cost per share for the $EBITDA revenue stream. This assumes that the debt/leverage of the companies are similar (or at least w/i the accepted screen) and allows for no difference in growth characteristics and also assumes similar types of distribution coverage (ie higher distributions w/ minimal or neg. coverage carries more risk). It works better when used to value the same company over time but that can still be a bit misleading especially after a secondary is done and/or a large recent debt refinancing has occurred.

As I can calculate this figure pretty fast, it provides me a first screen (if 15x or less) weather to pursue for a possible buy. Those with a $Price/$EBITA/share < 9x are the potential "value" candidates I want to review further.

This is where these other "Key Metrics" (above) are helpful. It's time consuming and many times I find each company has it's own unique positive features that have to be compared to their negative components (like large debt). It still comes down to the revenue streams that the individual operations generate and if they are growing and what components of those are affected by changes in commodity prices and/or are fixed by long term contracts.

My intention is to hold a new MLP investment long term (years not months) but some of these MLPs have increased in price so fast that at some point it becomes way over valued IMO.

Finally, I find that Mr. Market has a hard time valuing these MLPs too. Those MLP companies that have more transparency into their operations tend to be fairly valued vs Non MLP companies that have subsidiary operations that may/could be spun off into an MLP (ie. Triad Hunter operation w/ Parent MHR) and/or that could be a "drop down" candidate(s) into a MLP structure (SE w/ drop down assets into SEP). (Note: When SE announced their "drop down" last week, SE was valued 12% higher by Mr. Market. and SEP 8% higher).

I think the best undervalued proposition (in the current environment) are to find the Non MLP companies that may have MLP spin offs and/or Non MLP companies that have drop down assets that could be sold by the Parent (ie and/or General Partner) to one or more of the MLP operating companies.

NS & NSH might fit the latter category but like you pointed out it is heavily leverage and comes w/ a lot of warts. It reminds me of how PVR was structured several years back before they spun off PVA and acquired new NG gathering and sizable pipeline assets to replace their coal operations. The best time to buy PVR was at the time they completed the shuffle of all those assets w/ sizable write downs not before the restructure.

Therefore, I would want to see something a bit more disruptive in the NS/NSH story before I would step up in to buy some of their assets.

I am still focused on the Non MLP companies that have one or more operations that are looking at MLP spin offs. Several have been discussed here. DVN, one you mentioned, is still on my radar as one of them.

Devon Energy (NYSE: DVN) Midstream MLP - Master Limited Partnership to Benefit Parent Company

EKS
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News