Crosstex LP is selling off here as its held on quite well until today.. down 1.05. Energy Transfer Partners remains the biggest loser down 1.40. And the whole group pretty much remains in the red today.
For those of you putting together a shopping list these are the stocks i'm looking at to either add to positions or to start new positions.
Northern Borders Partners (NBP)new
Crosstex (XTXI) add
Crosstex LP (XTEX) add
Valero LP (add)
Energy Transfer Equity (ETE) new
Atlas Pipeline Partners (APL) add
Market firming up here in the last hour.
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- joewxman
- a meteorologist with a knack for trading and investing in MLPS! I also like horse racing, enjoy cigars and a good port wine.
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15 comments:
joe,
Missed the low of 36.40 by 10 cents but, as I said before, I picked up three lots at 36.50.
Carlos
good...you're already up a buck
Can someone recommend a good primer/explanation on the relative merits/tradeoff of owning the publicly traded GP vs underlying MLP?
thanks,
Mike
ptp cotillion site (on the blog roll) has good explainations of the mlps but not much on the gps. The advantage of the gp's increase as the splits increase from the LP. In some instances for example Markwest the splits to the GP are at the 50% rate..The tax disadvantage is that the distributions of the GP are dividends and therefore could be taxable...My view is its okay to own both...the GP probably has greater upside capital gain potential but that may vary of course from investment to investment. I'll try to find a primer on GPS vs LP's and post a link when i do.
http://www.ptpcoalition.org/ptplist.htm
the link is under the blogroll under General Public info..
and its coalition not cotillion...i don't know where my head was at with that one!
Thanks Joe. I was aware of the PTP website and have been reading much of the information there. In particular, there is a report by Alerian Capital slamming the "pure play" GPs, many of which are also setup as an MLP. They've performed some sort of calculation that indicates owning the GP with its unattractive yield is much less desireable than the MLP they manage. Examples I believe would include XTEX/XTXI, EPD/EPE, MMP/MGG, ETP/ETE. I understand the leverage, IDRs, etc of the GPs but I'd like to be a bit more quantitative when assessing the risk/reward.
thanks again,
Mike
Hard to believe they include XTXI /XTEX. I think the disadvantage with the lower yield makes it subject to general market corrections more so than an LP where the higher yield acts as a floor under the stock price. But XTXI has clearly outperformed XTEX (btw i hold both)in the last year and with the prospects of the dividend doubling in the next 2 years With the Barnett Shale purchase the stock price could break 100 by year end imho.
if you have a link to that report could you post it...i would love to read their justification in the Crosstex case. I would think the GPS that are getiing the 50% splits would be the better ones to hold longer term.
The best value in the space is MGG.
MGG is currently paying 4% and has the highest leverage to distribution increases at it's LP (MMP) than any GP. MGG's income comes entirely from higher quality IDR distributions instead of a combination of IDR distributions and LP unit distributions, as with most GPs.
MMP (MGG's LP) is expected to grow distributions a minimum of 8% per year through 2010 based on organic growth alone. MGG should grow at 20% based on organic growth alone. Any acquisitions will raise that substantially.
Compare MGG's 4.1% yield and estimated 20% growth with KMI's 4.1% yield and 10% estimated growth and the value becomes obvious. And MMP is much smaller than KMP making it much easier for MGG to benefit from acquisitions than KMI.
Funny about MGG...i wonder why the market has not embraced it like it has ETE for example. MGG remains under its IPO price. Perhaps that will change with its first dividend increase.
rbc capital markets must have been reading this blog and my thoughts! They upgrade Crosstex to outperform and downgrade Crosstex LP to underperform.
The Alerian report is on the ptpcoalition website
here. Scroll down to page 14 for their discussion of the GPs, which caused my original query here.
Thanks to everyone for for all the helpful info. I have been perplexed by MGG as well and would like to understand why the market is discounting it so much.
Mike
Mike,
They essentially argue that due to the leverage the cost of money is 14% vs 7% for the LPs and that at a 3% yield the risk reward ratio is too high.
On the other hand Crosstex (XTXI) has already said they will be nearly doubling the dividend from their newest aquisition (Barnett Shale) down the road. When the LP grows buy aquisition it issues new shares to pay for it. If the distribution growth is faster for the GP than the LP than i would think the GP might be the better investment. One could buy both the GP and the LP and then you have as they put it the synthetic investment of the whole company. They say valuations right now argue against it. I don't know if that applies in all cases; certainly not in the case of Crosstex.
I don't believe MGG will continue to be this cheap forever. Things have been going according to plan at MMP and all the analyst reports I've seen on MGG or MMP are positive.
ETE did fall for a period of time after it's IPO. In MGG's case I believe a temporary excess of supply of GP units, due to there being so many GP IPOs recently, has caused prices to drop. Also, there is has been a rumor that a private equity fund which owns 60% of MGG has been reducing it's stake in MGG.
There are dozens of free MLP research reports on this website for anyone interested.
http://finance.groups.yahoo.com/group/mlp_research/
Thanks for the insight. The Yahoo reports archive was most helpful in understanding what's happening at MGG. From a technical standpoint it looks dangerous (new all-time low at 20.00 today) so I'll wait until the chart indicates most of the disappointed IPO buyers have been blown out before deciding to jump in. Suspect many stop-loss orders lurking just under $20.
Great blog idea Joe.
Mike (future MGG owner)
Btw, I should note that over the last 5 years MMP's distribution has averaged 17% growth per year. And every year that MMP has given guidance they said to expect a 10% increase. So, I would expect the 8-10% guidance this year is likely quite conservative.
MGG's distributions grow at about 2.5x distributions at MMP. So, 17% growth at MMP should equal 42.5% growth at MGG.
As for where the bottom will be, it is hard to tell with so little trading history. I would assume a nice round number, such as 20, would provide support. Also, there are some slight MACD/RSI divergences showing. So, I would expect the bottom to be soon.
You may be right about those stop loss orders. So, waiting a bit may be the prudent thing to do.
Goodluck.
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