2014 MLP & Logistics Outlook
2014 Outlook - MLPs at Mkt Weight in 2014; Flattish NGL Price Outlook; Total Return by Picks Varies
Widely; Rating changes; Revising Ests & TPs
09 January 2014, 48 pages, doc.research-and-analytics.csfb.com
2013 Infrastructure Spend Surged as Did Capital Markets Activity: Capital
investment in 2012 in infrastructure was near $35B, nearly double 2011 only to
see 2013 infrastructure spend rise still higher to roughly $38B. To put this in
perspective, in Aug. 2012 we had est. 2013 infrastructure spend to be in the
$21B range. There were 21 IPOs, 65 follow on offerings and 11 other/secondary
offerings. Approx. $29.5B of debt was issued along with nearly $27.6B in equity,
both new records – compare this to the total market cap of energy MLPs which
now exceeds $460B.
2013 Exceeded Expectations: Throughout most of 2013 we had called for 20-
24% for the Alerian MLP Index and higher than that on the Cushing MLP Index.
Results exceeded expectations in that the Alerian MLP index delivered returns
of 27.6% for 2013 and the equal weighted Cushing MLP index posted 37.6% vs.
32.4% for the S&P 500. The Alerian MLP Index lagged the S&P 500 for the 2nd
year in a row following a streak of 12 straight years in which it beat. But then
MLPs tend to lag bull markets and with the S&P500 delivering the strongest
return since a 33.4% total return in 1997, it was clearly a bull market.
But 2014 Will Require Greater Investor Discipline and the Game Will Be
More About Stock Picking than Themes: Yields have dropped below 6% on
the Alerian and near 5% on the Cushing, roughly 110bp and 176bp below
average respectively so valuations are no longer cheap. Picking issuers with
positions in fast growing areas will be important for outperformance (i.e. play
good offense). Oil infrastructure is still in short supply. But investors will also
need to be mindful of the ramifications of the more extended US balance sheet
being supported by the Federal Reserve so defensive positions will continue to
need to be part of any portfolio. Those MLPs and companies with the position
and capability to deliver on these contradictory objectives will be the way to
build an MLP portfolio that can endure these macro risks/cycles going forward.
We have made rating changes for EXLP, GEL, TLLP and WNRL, as well as
target price and estimate revisions across our coverage universe (see p34).
Stocks/MLP Picks in 2014: The challenge in picking companies to invest in
going forward is the names that share these offensive and defensive
characteristics have been bid up to relatively expensive valuations. In other
words more of a stock-pickers game then specific themes in the year ahead.
Our top pick is ETE driven by increasing likelihood of the LNG export project as
well as improving distribution growth prospects at their underlying MLPs,
followed by MWE which has the leading midstream franchise in the fastest
growing production basins, the Marcellus and the Utica. Our other top picks are
PAA and MMP. We also like GEL on the crude logistics side on the Gulf coast
and EQM and ACMP which also have solid franchises in the Marcellus. |
