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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Mattyice who wrote (53582)	3/13/2014 5:58:28 PM
From: E_K_S	1 Recommendation Recommended By Mattyice Respond to of 78740

Hi Mattyice - You summed it up pretty well. Here are a few other items I look at that go into my value proposition. 1) What's the utilization of the assets. If it's a pipeline is it 50% utilized, 80% or even more? Can you determine what the term of their service agreements are? Long term or short term. The best I have seen are some w/ 9 year terms. What type of escalation terms are there. . . can they raise fees? The one I see usually only allow some fixed amount to cover inflation. I specifically looked at those that FISH have. They are shorter in term 3-4 years but do provide for minimal fee increases. They are "fixed" fee and have no commodity component thus no commodity price risk. 2) The same type of utilization review for the processing plant both size and expansion options. I believe MHR built two facilities in two phases They sold (I believe it was a 50% interest to MWE) of their phase one assets but continue to operate their phase two processing facility and pipeline(s). 3) Try to find out the long term design criteria. Will a finished build out be made done in phases and what is the CAP-X projections for each completed phase. Are there plans to build more processing facilities and/or expand pipeline foot print and/or replace current pipeline with larger diameter pipes thus expanding capacity. 4) What type of assets are in the complete package? Does the MLP co-own gathering and/or processing facilities? Sometimes these ownership interests can be sold and can fetch a premium from the other partners. Note: APL stated this week of their intention to sell their 20% interest in their 1800 miles pipeline they co-own w/ CVX. I thought they would try to buy the other 80% interest. CVX already stated their intention to sell this asset so a new buyer must be waiting in the wings. My strategy is to follow the buyers for this pipeline assets and piggyback on their purchase if/when they show they got a bargain price. 5) Study the regional footprint and see how many competitors there are. Do gathering facilities overlap and/or could there be a merger candidate company out there that makes two systems more efficient (ie economies of scale). RGP and PVR recently completed a merger. Combined it is now a better company w/ higher FCF when compared to their total combined debt. Crestwood Midstream Partners LP (CMLP) recently completed an acquisition but have yet to obtain the savings from their merger. I am waiting to buy this one at a bit lower price because I believe eventually (maybe 18 months) management will make the tough choices to get their cash flows growing again and long term debt down (maybe a secondary and/or a sale of their non core assets from the merger). 6) I expect a lot of consolidation in the pipeline, storage and processing sector. I also think we will see more mergers in Midstream companies w/ assets operated/owned in Canada that will combine resources w/ those in the U.S specifically those that have clear pipeline transportation to refineries and/or export terminals. 7) Finally, the market is the best predictor of current & future value. If the distribution is too good to believe (like anything over 8%) there is something not priced correctly and/or no growth for next several months or years and/or a pending distribution cut. That's why you will find new MLP IPO's many times present a good buying opportunity. The MLP is new, not followed and many of these facility utilization and/or growth characteristics are not yet known by the market. I am still learning about these types of company structures, specifically pipeline & processing MLP's. I do not have time to do a lot of detailed analysis and it is also a bit like looking in the rear view mirror. Yet it's still probably a good exercise if it would have avoid a the BWP landmine. It looks like it surprised a lot of analysts too. EKS