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Master Limited Partnership Simplifications on the Rise

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  With the announcement of three separate master limited partnership simplification transactions on May 17 alone, we must revisit our thesis that the business structure may not be in it for the long haul. By Kris Rosemann At Valuentum, we continue to believe the master limited partnership (MLP) business model is at risk over the long haul, and recent news from the space only seems to support the notion that the MLP model we once knew may be fading more quickly than some had expected. If there is nothing inherently wrong with the structure of MLPs, then the rate at which simplification transactions are occurring would certainly be an alarming development, but we continue to point to factors such as … Read more

Nearly 60 Distribution Cuts Later, We Maintain Our View on the Hazards of the MLP Business Model

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Image Source: Brian Cantoni Valuentum has been highlighting the inherent risks associated with the master limited partnership (MLP) structure for some time now, but we are not alone in acknowledging the limited sustainability of such structures. Internal simplification transactions may only become more common moving forward as management teams seek to optimize the structure of their entities. Readers should continue to cast a skeptical eye on this business model. By Kris Rosemann and Brian Nelson, CFA Quite possibly, Valuentum made the “call of the century” when it outlined its warning on MLPs in June 2015, embedded in its Kinder Morgan (KMI) “call,” and more explicitly in September 2015, “Why the MLP Business Model May Be a Goner.” There was a … Read more

Objectivity in Analysis and the MLP Enigma

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President of Investment Research Brian Nelson talks about how financial statement analysis keeps analysts objective. He also goes into how the distribution yields of MLPs may not reflect underlying business dynamics. Nelson also explains an inconsistency in the use of financing that supports the idea that MLPs are using external capital market issuances to fund distributions. Running time: ~15 minutes.

Video: What Cash Flow Are You Talking About?

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President of Investment Research Brian Nelson reviews important topics from the first six episodes of “Off the Cuff,” and goes into great detail about all the intricacies of “cash flow” from traditional free cash flow to enterprise free cash flow valuation. You know you want to watch. Running Time: ~14 minutes To view Valuentum’s updated YouTube page, please see here.  Pipelines – Oil & Gas: BPL, BWP, DPM, ENB, EPD, ETP, EVEP, HEP, KMI, MMP, NS, OKS, PAA, SE, SEP, WES

Omega Healthcare and Holly Energy Partners: Case Studies in REIT and MLP Income Evaluation

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An assessment of a REIT’s or MLP’s dividend/distribution strength not only should reflect firm-specific fundamentals, but also external market conditions, which are paramount to the sustainability of most any REIT’s or MLP’s payout. Let’s remind readers of this important dynamic, which is captured via the two different Dividend Cushion ratios, and walk through what goes into the analysis we pursue when making a change with respect to our assessment of a company’s dividend health or safety. By Kris Rosemann and Brian Nelson, CFA Real estate investment trusts (REITs) and master limited partnerships (MLPs) are not your typical operating companies. These business structures have certain provisions that incentivize lofty and growing dividends/distributions, which sounds good, but because these business models tend … Read more

Charting Cash Flow and Net Debt — The Oil Majors

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Traditional free cash flow generation has been strong for the oil majors through the first nine months of the year, but their balance sheets remain bloated with net debt. A few haven’t covered their cash dividends with free cash flow generation through the first nine months of 2017. Oil & Gas – Major: BP, COP, CVX, PTR, RDS, TOT, XOM

Kinder Morgan Versus Enterprise Products Partners?

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Image Source: Stefan Buddy  Question: Valuentum’s latest note on Kinder Morgan (KMI) hinted the company’s situation is improving, even though its ratings are weaker than Enterprise Products Partners’ (EPD). Would you please compare these companies? Is Valuentum saying Kinder Morgan is a better bet than Enterprise Products Partners because Kinder Morgan is a corporation and not an master limited partnership? By Brian Nelson, CFA Answer: Thanks for the note and your question. It’s often difficult for us to compare and contrast two companies that are very net debt heavy as we tend to be very debt averse in the first place. That said, there are a few things that we look at with respect to Kinder Morgan versus Energy Products … Read more

Kinder Morgan’s Dividend Growth For Next Year Is Achievable; Here’s Why

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Image Source: Roy Luck After its infamous dividend cut, Kinder Morgan is getting things back on track. We applaud management for its ability to bounce back from a tumultuous energy-resource pricing environment. By Brian Nelson, CFA We have a lot of good things to say about Kinder Morgan (KMI). Here’s what we wrote following its second-quarter results in July: Kinder Morgan appears to be back on track, something that it set the stage for in early 2016 when Barron’s wrote about Valuentum’s take, “Is Kinder Morgan on the Road to Recovery (January 2016).” The pipeline operator continues to trade near our fair value estimate of $20, so it’s hard to make the case that there is a tremendous valuation opportunity … Read more

Recent Stock Drops; Dividend Cut Coming at Plains?

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Image Shown: Plains All American’s stock price may be building in a distribution cut that may materialize in the near term. Several companies disappointed the Street as of late. Though the broader equity markets have been generally calm and steadily-advancing, some underlying constituents have been anything but. By Brian Nelson, CFA It’s been a bull market for some time, but that doesn’t mean all is calm within the ranks. Plains All American (PAA) disappointed investors August 8 after performance during its second quarter came in below expectations and the company lowered forward guidance. We’ve been cautious on the master limited partnership (MLP) space and critical of certain industry-specific metrics for some time, so the disappointment shouldn’t be surprising to our readership. … Read more

MLP Speak: A Critique of Distributable Cash Flow

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–> Handout 1: Pitfalls of Distribution Yield Analysis (pdf) –> Handout 2: Linking P/DCF to Enterprise Free Cash Flow Valuation (pdf) Let’s talk about a controversial metric that is used in master limited partnership (MLP) reporting. Just how useful is it, and should it be allowed? By Brian Nelson, CFA It’s been a few years since the fallout in the prices of most master limited partnerships (AMLP), but to me, it still feels like yesterday. We continue to have many concerns about the longevity of the business models of MLPs, and we maintain our view that the operating structure will be challenged over the long haul. New equity and debt funding (issuance) continues to, in part, fuel the distributions of most MLPs, … Read more