Hmmm, looks like XTXI investors are sheep being herded by the analysts rather than formualting their own opinions. I listened to the call and came away with mixed news, but the dividend projections they gave were still very good. The $2.40 to $2.65 number is the paid, not the annualized run rate. Same thing with XTEX. I think that is a misunderstanding by many. Surprised to see two days of being down $1.00 and then a $3.00 drop leading me to think that most are following analyst projections rather than thinking for themselves. I would have expected the opposite. Down $3.00 on day 1, followed by 2 $1.00 down days. Oh well, the market isn't efficient.
Notice Morgan Stanley is looking to buy XTXI (corr10001 pointed that out). Looks like MS would use the operations as a group of assets to trade around (storage. pipelines and barges would allow them to make bets on forward pricing, as well as let them take advantage of differential pricing.
I haven't listened to the replay yet but I have gone through the (very long) slideshow. Toward the end management forecasts a $0.90 quarterly dividend by Q3 07. Does anyone think that the stock would still be in the mid-70's then?
If you assume that GP's or specifically this one continues trading around the same yield, let's say 3 to 3.5% (with annual div of 3.60) then of course the stock will go up. Then you're talking $100+ easily.
But...what if GP valuations don't continue to fetch the same premium. 3.60/74 = 4.8%. I don't think XTXI will be trading with a 4.8% yield in '07, but I wouldn't bet my life on it.
Of course a lot of other things come into play, but my point is that GP valuations aren't as established as LP's. Who knows what Q3 of '07 holds for the GP's...
Indeed it is looking cheap. Company is debt free, holding cash, cash is builing up as they set the dividend payout ratio to reflect as though they were paying taxes, even though they still have remaining NOL's to shield them.
Here is the current yields on most of the GP's that are comparable (i.e. either straight GP or pretty close).
EPE $38.48 $1.12 2.91%
XTXI $73.33 $2.24 3.05%
NRGP $34.25 $1.16 3.39
ETE $23.60 $0.80 3.39%
MGG $22.84 $0.80 3.50%
OKE $30.34 $1.12 3.69%
KMI $91.60 $3.50 3.82%
I think that while the yield is still a little lower than the others, they have the N. Texas pipeline coming online at the end of this month and will start kicking in a healthy amount of cashflow which will result in higher distributions and dividends. I think we can't forget that they mentioned the dividends paid would equal up to $2.65. which would put them at a run rate of around $2.96 at year end. (.56, .62, .68, .74 for the 4 Q's which adds up to $2.64).
Lehman's put out some decent stuff comparing the GP valuations. Before this drop XTXI and EPE were looking a little pricey and ETE was the bargain.
You can find it at end of the latest MGG report as well as the XTXI one I believe.
If you haven't joined the group yet I have those up at: http://finance.groups.yahoo.com/group/mlp_research/
I have talked/emailed privately with some of the frequent posters on the MLP/GP boards. It is more difficult to value the GP's than the MLP's. The market was, and you could probably say, still is using yield. The truth is that there are a multitude of different and better ways to analyze them. The growth leverage they possess, the capital structure(taxable or non-taxable entity), amount of debt/leverage at the GP, the existance of lack of operating assets at the GP level, the growth prospects of the MLP, the average cost of capital for the MLP, etc etc etc. Its not as easy as saying they should all trade at a 3.00% yield. Most of the public GP's have nice niche. Kinder Morgan has the CO2 tertiary recovery operations, Enterprise has a near monopoly on the Mont Belvieu NGL hub etc etc.
I personally like Crosstex and a quasi MLp, Copano, because of management and growth prospects. Lehman highlighted the growth prospects at XTXI are not nearly diminished as the market has seemed to think. These are great opportunities. Copano has huge growth built into the existing assets yet the market does not reflect all of it into the price. It is trading at a lower yield but remember it has no GP to pay, and they are still small, have a great balance sheet and a huge coverage ratio. They could notch the distribution up for a year or two (albeit at small increments every Q) without ever having to make any acquisitions and still be in great shape a year or two from now. Right now the market is saying, show me for both XTEX/XTXI and CPNO and I think they will both come through strongly.
Thanks for setting up the MLP/GP analysts report board. I just finished treading through the XTEX and XTXI reports. All of them were good, even Raymond James. The RJ report was probably too dire, the GS probably overly optimistic but I think its a good balance to read them.
One thing I thought I might bring up for discussion, because we see so little of it mentioned on the boards, is, the treating assets. I never realized how much of a contributor they could become. I knew they plants were small, some on skids, but I didn't realize the payback multiple was around 3 years. While the plants might be cheap, the scale of having nearly 200 plants by year end is impressive. I like the idea of a 3x or 4x payback multiple.
Yeah, GP's are a tricky game. I'd been staying away from them for the most part other than ETE. Picked up MGG and XTXI this week. You only live once, right.
I like MGG having 100% income from the GP. It's a shame ETE didn't get leveraged up a little more. But all the things you point out are very valid. The GP's shouldn't be trading purely on yield basis. And even if they do I've read things here and there that say over time the GP's yield will tend toward the LP's yield. If that starts happening you can't count on dividend growth fueling unit price growth. I dunno. I'm treading lightly in GP's.
Copano is on my radar screen but everytime I set a limit order for it, it seems to jump up a bunch right afterwards. It's been playing cat and mouse with me all the way from 40 to 44 and I still don't own a share. lol
That good balance you speak of is exactly why I wanted to set up the group. I enjoy reading many opinions and working from there.
When I first "found" MLP's this X-mas I somehow let Citi reports get me into NRP, TPP, and PPX. I'm so glad I found the Yahoo boards, and Factoids site, and read other reports etc. That MLP bundle was going nowhere fast, lol.
As for the treating assets, I'm still a young relatively newbie MLP investor and I'm not terribly familiar with the energy industry. Treating is not something I hear a lot about on most CC's either. I do wanna start following the businesses I own in a little more detail though, so hopefully others have meaningful treating discussion points. :)