CAPL – June 28 article by Daniel Thurecht, Neutral rating, 3 comments. 1. Distribution coverage is poor, although it’s better than many other MLPs. He computes distribution coverage by free cash flow, but he generally adjusts FCF so it’s not usually the same as reported. I don’t bother looking at his adjustments any more. So coverage is poor, indicating a risk of cutting. 2. Leverage is too high. He’s got debt/EBITDA ratio around 5.5X. Even if CAPL were to cut the distribution in half, it still wouldn’t have enough cash flow to meaningfully deleverage. 3. CAPL’s liquidity isn’t very good either. 4. All in all, expect a cut in the distribution.
DCP – June 30 article by Long Player, Bullish rating, 26 comments. LP has a subscription service on SA; I think this is his first post about DCP. 1. Leverage ratio per the bank standards is 4.1X EBITDA. But the bank ratio excludes $ 500 million of senior (but unsecured) notes due in 2021, so the total leverage ratio is around 5X. That leverage was OK in good times but it forced DCP to cut its distribution in half now to try to pay down some debt. 2. DCP also cut its cap ex program so growth will be slower. (Are you wondering yet why he’s bullish?) 3. The low price of oil is causing volume declines in the basins that DCP operates in. LP says this is cyclical and these basins will eventually return to favor. 4. Throw in the preferreds (I bought some in March) and the leverage in front of the common unit holders is even higher. Anyway, LP thinks the distribution/cap ex cut will help to lower the leverage and keep the new distribution safer.
EPD – June 30 article by Aristofanis Papadatos, Bullish rating, 47 comments. Mr. P last wrote about EPD (bullish post) in October. Recent developments involving a COVID vaccine point to the end of the economic upheaval. (Me – if I believed that, I’d buy stock in the vaccine makers, not energy companies.) Then on to EPD: the usual stuff – mostly high credit counterparties, mostly fee-based revenues, good balance sheet, good DCF coverage ratio, you name it, it’s good. EPD is very unlikely to cut its distribution. Sorry, not much to this post.
ET (and EPD) – June 30 article by Fluidsdoc, Neutral rating, 172 comments. Fluidsdoc has a subscription service about oil stocks on SA. This article is really about the overall energy and midstream business; ET and EPD were chosen as examples. Nice brief description of the problems – natural gas prices are tanking again, oil prices are terrible, US production will probably be down 30% as we exit 2020. Other SA authors write about coverage ratios, leverage, etc., but who cares – pricing is terrible, production is down, and midstream is suffering and will continue to suffer. Noce but depressing article, although I liked that he picked up on continuing low nat gas prices, which I asked about a week or 2 ago on this board. I didn’t read the comments but I would think some of them are interesting.
GLP – July 4 article by Rida Morwa, Bullish rating (on GLP preferreds, I think, but he clearly likes the common units as well), 24 comments. I don’t understand the following that Mr. Morwa has developed. This is another situation where he takes a second-rate (or third-rate) MLP and tells you that while the common may look risky, the preferreds (or baby bonds) are great buys. I’m thinking of his rec of SMLP bonds a few years ago and MMLP bonds last year. If a company is a basket case, just stay away. GLP is not a basket case. It distributes gasoline and owns/operates/leases gas stations; it wholesale distributes heating oil; and it has some odds and ends from prior failed expansion efforts. It is a pretty simple business and I have owned it in the past. This article talks about GLP, compares it to its biggest similar companies (SUN and CAPL) throws in some comparison to SRLP ( heating oil distribution) and says GLP is a good buy. Good DCF coverage ratio (not much else financial ratios), and the coverage ratio is now even better since GLP cut the common distribution. But cutting the common distribution makes the preferred distribution that much more secure, so buy the preferred. (Me – This is crazy. There are 2.7 million GLP preferred units outstanding ($ 70 million total market cap) and per Yahoo, they trade 7,300 units per day. You think this might be relevant? Mr. Morwa doesn’t mention it. I’m sure you can buy the preferred, but I am also sure that selling it will be an issue.)
MMP – June 30 article by Power Hedge, Neutral rating, 8 comments. MMP did an investor presentation in mid-June and this post reprises it. To tie it loosely into Fluidsdoc’s post about ET and EPD, Power Hedge says the company’s presentation was all about MMP without much focus on industry trends and problems. MMP operates the US’ largest refined products pipeline system. The FERC raised tariffs on July 1 and that should help. (Me – I thought the tariffs were only the maximum amounts that could be charged, and pipeline operators had to negotiate the actual rates with shippers. In today’s market, I wonder if actual rates will increase.) Anyway, the usual stuff about mostly fee-based revenues so the drop in energy prices supposedly doesn’t hurt MMP all that much. Plus, good balance sheet and good historical record. And more, if you’re interested. (Me – after nting that MMP didn’t talk much about industry issues, neither does PH. Nothing about what might happen after November. Basically, just MMP is a great company. Not PH’s fault – he’s just rehashing the company presentation.
MPLX – July 3 article by Daniel Thurecht, Bullish sentiment, 16 comments. Mr. T seems intent on writing about every MLP; he has nothing to sell. I think he has some decent ideas about coverage ratios, but I don’t see much consistency in his bull/bear ratings. His articles seem to fall into 2 categories; in some he talks only about financial numbers (coverage ratio, etc); in others, he focuses on stock prices and what is likely to happen under different assumptions about the distribution. This article follows the 2nd pattern - he runs numbers using different assumptions, and lets excel tell him how the unit price will react. So he runs Monte Carlo simulations that he thinks covers hundreds of assumptions and concludes that even if MLPX cust the distribution by a third, investors will still make 20% if they buy now. Essentially he thinks MPLX’s current price bakes in an assumption of the distribution being cut in half, never to grow again. He thinks that’s too pessimistic.
PBFX – June 28 article by Daniel Thurecht, Bullish rating, 6 comments. 1. Distribution coverage has been mediocre (based on adjusted free cash flow) but now that PBFX has cut the distribution by 42%, the coverage ratio is great. There should be $ 100 MM of real free cash flow to pay down debt or grow. 2. Leverage is good, at 3.3X EBITDA. 3. Liquidity is also ample. Me – no discussion of PBF, which is PBFX’s sponsor and controlling owner. PBF has always been a second-rate refiner, sort of a mash up of acquisitions. It eliminated its dividend this past quarter and lots of analysts have rated it a sell, most recently Goldman.
SRLP – June 30 article by Trapping Value, Very Bearish rating, 23 comments. TV has a subscription service on SA, if you’re interested. I think this is his first post about SRLP. SRLP is sort of a mix between GLP and CAPL. Mostly it wholesale distributes refined products – gasoline and heating oil in the northeast. Like most MLPs, it dropped earlier this year and its sponsor made an offer to buy the publicly-held units. Then things recovered a bit and the offer was withdrawn, leaving us with the basic business. The basic business has issues – warm winter hurt the heating oil business, COVID hurt the gasoline distribution business. Throw in the fact that in the better days, SRLP was really overpaying (or under-earning) its distribution. Now with the new problems, TV thinks the distribution will get cut big time. Specifics: Q1 was bad, and Q2 and Q3 are usually weak (no heating oil business). If you assume the Q1 pain continues for a while, there’s no way SRLP covers the distribution. Plus, as SRLP has levered up to pay the distribution and cap ex, interest expense has been consuming a larger part of EBITDA. That isn’t going to change. No way will the lenders allow the distributions to continue at the current rate. Maybe 6 – 12 months out, but the distribution gets cut big time.
OKE – July 2 article by Daniel Thurecht, Neutral rating, 32 comments. Mr. T is constantly showing up in these weekly summaries and I’m not sure he has enough to say about so many different companies that is worthwhile. He runs his numbers and reports whatever they say. Here, he’s neutral (really bearish, I think) on OKE. Coverage ratio isn’t good; OKE has been borrowing money to pay the distribution. Their leverage is already too high so they can’t continue borrowing to pay the distribution. This article does have something new – it includes a chart of the various factors he considers important and grades OKE on each factor; the chart is interesting, but I’m not sure how it correlates to the overall rating. And like I said, he’s writing way too many articles to get any real depth in his analysis of any 1 company. But the information si there, if you’re interested.
FUN – June 29 article by Crunching Numbers, Bearish rating, 13 comments. CN has owned a small amount of FUN for a long time, but he has been neutral/bearish on the name since last fall. FUN runs a series of major amusement parks and related assets. With the virus, its operations have been decimated and its price has bounced all over the place depending on market sentiment as to reopening and the like. The article is a good discussion of FUN’s current situation – its biggest parks haven’t reopened yet, the parks that have reopened aren’t doing all that well, the recent Presidential order limiting foreign workers is a problem (or would be if the parks were all open), Q2 results will be dismal. Things won’t really begin to improve until next year at the earliest. Add into this mix of bad news the fact that traders are bouncing the stock price all over the place on every bit of news, good or bad. CN expects the price, currently $ 29, to drop to $ 20, but he still hasn’t sold the last of his shares.
6-month report card. 6 months ago was New Year’s week and a slow week with only 3 recs, all bullish. Best on was Michael Gayed’s buy rec on CG, a former MLP, down 10% since then. Worst rec was Long Player on MPLX. He was right that the distribution was safe (so far) but he’s still down 30% since then.