Energy MLPs: How Did 6 Logistics Subsidiaries Perform in 2Q15?
Most energy securities have been trading at lower levels than they did more than a year ago in June 2014. As of September 1, 2015, the Energy Select Sector SPDR ETF (XLE) is down 18% since the start of 2015. XLE is down 33% over the last 12 months. However, there are pockets of great opportunities in the down sector.
For instance, the excess crude oil supply has been a boon for MLPs in the refining business. For more on this, you can read our series High-Return Refining MLPs: The 4 Investors Should Watch.
MLP subsidiaries of refining companies that are engaged in oil and refined products transport and storage have also benefited from excess supply. Higher oil supply means more opportunities for storage and transport.
Total year-to-date returns of six logistics MLPs exceed XLE’s year-to-date returns. These six MLPs are Valero Energy Partners(VLP), Holly Energy Partners (HEP), Delek Logistics Partners (DKL), PBF Logistics (PBFX), Phillips 66 Partners (PSXP), and Tesoro Logistics (TLLP).
Year-to-date returns for VLP, HEP, DKL, PBFX, PSXP, and TLLP are 22%, 21%, 14%, 1%, -11%, and -8%, respectively. In comparison, the Alerian MLP Index’s (AMZ) year-to-date total return is -20%. AMZ is an index of the energy MLP sector’s top 50 MLPs.
The above graph shows year-to-date total returns for the six logistics subsidiaries compared to XLE. TLLP forms ~0.7% of the Guggenheim Raymond James SB-1 Equity ETF (RYJ).
Even though PBFX, PSXP, and TLLP have recorded high EBITDA (earnings before interest, tax, depreciation, and amortization) growth in most of the last several quarters, it’s not reflecting in their unit performance. One of the reasons for this could be a general discomfort among investors with the energy sector, although this is not reflected in the units of VLP, HEP, and DKL.
In this series, we’ll see how these six MLPs have fared in terms of EBITDA growth. EBITDA is one of the most important metrics to measure MLP performance, as it provides a clear picture of operational performance. At the same time, it excludes non-cash depreciation and amortization expenses that might distort a company’s actual operational performance.
Broadly, if we subtract interest, tax, and maintenance capital expenditures and add non-cash costs to EBITDA, we get distributable cash flow, another key measure of MLP performance. So EBITDA growth is broadly indicative of an MLP’s ability to grow distributions over the long term.
This series will also compare other key metrics of the six MLPs, such as leverage, distribution growth, yield, and revenue growth.
Browse this series on Market Realist: