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

To: E_K_S who wrote (55595)	7/1/2015 9:04:52 PM
From: E_K_S	Respond to of 78627

Re: CMLP/CEQP Valuation of common CEQP MLP units based on 2020/2022 senior bond debt 'blended' yield. Was looking at the CMLP senior bond that has two issues $600mln each. The 2020 maturity has a YTM of 4.8% and the 2022 maturity has a YTM of 5.4%. Therefore the blended CMLP senior debt yield is around 5%. (Note: the issues at PAR have a blended yield of 6.06%). Typically the common units for a MLP will have a distribution yield that is higher than the blended senior debt bond yield and is priced by the market based on (1) coverage and (2) future growth. As an example, OKE's div yield is 70% higher than it's senior debt. OKE is the GP and not an MLP so this ratio may be a bit lower than when senior debt is compared to it's underlining MLP. OKE and CMLP have similar operations (NG gatherers, processing & storage). If the MLP unit yields 1.7x the blended senior debt (5.0% x 1.7 = 8.5%), the MLP unit should yield 8.5%. The current distribution is $0.55/year values CEQP at $6.47/share or at the current market price of $4.16/share, CEQP shares are 36% undervalued. This is just a quick back of the envelope valuation approach. It's always good to look to the senior debt for price discovery. If the senior debt was selling at some distressed level (like XCO), it may/would confirm the low common stock (MLP unit) price. FWIW, XCO hit an all time low today and it's senior debt sold off 6% w/ a YTM of 25.63% EKS