And now for a second topic - analysts and their DCF projections compared to MLPs are their contention that they are getting [taking a number off the top of my head] 80% of their revenues from fee based contracts and the portion of their income that is commodity sensitive is 75% hedged and thus predictable. That was the theme of the March MLP Conference - with all the MLPs telling us how predictable their cash flows were.
It's a good thing that I was not there at the conference - caused I would have yelled at the top of my lungs - bullsh!t! Dang - I might have even found some uncomplimentary expletive adjectives to describe that quality of said droppings.
Because if their cash flows or SOOOO predictive, then why is not some of the predictivity leaking into the analyst DCF estimates? Four quarters a year each MLP has a conference call to update them. Most MLPs have annual analyst meetings that last a full day - and I would guess the MLPs try to accurately give the analyst information to shape those estimates.
But - ETP's DCF estimates for 2006 rose 47% from January to December. MWE's DCF rose 56%. PAA's DCF rose 37%. CPNO's DCF rose 34%. XTEX's DCF fell 38% [while is was still raising distributions]. TLP's DCF fell 27%. And these are DCFs - not GAAP based EPS'. I can understand wide variations in EPS estimates. I just do not get it when it comes to such errors in DCFs.
It just does not add up! If cash flows are predictable, then DCFs should be predictable. Or maybe I need a lesson in accounting to show me where I am wrong.
And why should I get disproportionately upset about the lack of accuracy of DCF estimates? Because reasonably accurate DCF estimates can lead one to reasonably accurate distribution growth expectations. And we should expect that from our MLPs and our analysts. We should DEMAND that.
So . . I am using DCF estimates - for which I already complaining about due to their lack of accuracy - to justify my expectations of distribution growth, which differs significantly from yours [Chart's]. Doesn't that make me look stupid! And that should just NOT be the case. It is more logical to base distribution growth expectations on DCF projections that upon past distribution growth. And that usually is the case. Because analysts usually get DCF projections correct within a margin of 10% plus or minus. And that is close enough for us to make our individual growth in distribution projections.
Spoke with ETP yesterday. They said they will continue to produce both quarterly EBITDA estimates and updates as needed but are unable to compute DCF. I certainly wonder why? They did offer a personal call with the new CFO to discuss the matter. Plan on speaking with him after the next conf. call.
We are in total agreement that DCFs should be much clearer and simplier. The company response is usually that DCF is a nonGAAP measure. My response that so is EBITDA is always met with silence. That silence combined with most brokers cutting back on research and/or access to it will make personal sharing of information much more important going forward.
arbtrdr, As an accountant, I have to say the corporate response that DCF is a non-GAAP measure is "bull droppings". If they can forecast EBITDA, they can forecast DCF just as accurately. Cash flow is the life-blood--they should have a better handle on that than accrual-basis numbers. Keep after em! Maybe the new CFO wil tell you something he's not supposed to tell.