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Atlas Energy Group, LLC Message Board

  • xocy713 xocy713 Mar 4, 2014 12:27 PM Flag

    ATLS vs ARP

    Can anyone opine on why you would by one rather than the other. I am having difficulty understanding the relationship that parent companies have with their MLP's. There are many of these out their like this one and Kinder Morgan. Hopefully I can get some sincere information and not a bunch of cynicism

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    • Growth. If you believe that both ARP and APL will see above average Distribution growth then buy ATLS. If you don't foresee that happening then ARP is a better play (as you know that your getting 10% today with potential for future increased distributions (along with the risks associated with all E&P companies).

    • ATLS the GP of ARP, APL and now AGP is a leveraged play on the performance of the underlying listed MLP's. The leverage is not necessarily financial leverage through the use of debt, but rather, the leverage inherent to the GP's contractual participation in the earnings and cash flow of the operating MLP's through the incentive distribution rights, or IDRs. Basically, once the IDRs are in the money, the GP shares in the cash flow dollar for dollar. This increases the cost of capital for the MLP but the return on capital for the GP is incredibly high. In fact, the incremental capital the GP needs to put up is zero so mathematically the return on capital is undefined (really good) as the denominator in the calculation is zero.

      You will notice that the GPs always trade at a significantly lower yield than the underlying operating MLP's. In this case, ARP trades to an 11% yield, APL 8% and ATLS 4%. This is justified given the GP's much higher yield or distribution growth rate given the leverage to the IDRs, plus the very high returns on invested capital. Inherently, the GP will always be a more volatile security given these dynamics. In my case, I own 2 shares of ATLS for every share of ARP I own. ATLS has the upside but ARP protects my downside. If I only had to own one and I didn't want to look at it for 3-5 years, I would own ATLS as it is a superior mouse trap bar none.... I predict this will be one of the best performers on the NYSE over the next 3-5 years. It trades to little over a $2 B market cap. There is a lot of room to the upside as we are not even close to dealing with the math of large numbers yet.....

      • 1 Reply to bosox_pats
      • One other benefit of owning the GP is that every time ARP or APL issues additional units, ATLS' IDR and general partner income goes up. So if you feel that ARP and APL will be growing through acquisitions and projects that are financed with additional stock issuances, the growth in ATLS' income will be explosive. If you feel that the share counts of APL and ARP will remain constant, you may be better off with the higher dividend yields that APL and ARP offer..

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