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September 22, 2012

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MLP Winners & Losers: Hungover

Stocks and MLPs had a QE hangover this week, both closing slightly down on the week, maybe a bit strung out after all the euphoria from the last few weeks of fresh market highs.  Maybe investors were just waiting in line for the iPhone release, or maybe the market doesn’t have to drastically move each week.  Maybe in the parlance of technical traders its OK to just consolidate for a week or two.

We got what the market was pricing in last week with QE-n, so where do we go from here?  What’s the next catalyst?  Probably the next employment report that comes out October 5th, or some other country announcing stimulus, although Japan’s announcement didn’t move the needle in the U.S. markets this week (or in Japan’s for that matter after a brief bounce Wednesday).  Maybe the presidential election will be the next big catalyst, although that may prove to be anti-climactic if Romney campaign keeps shooting itself in the foot (which is often in its mouth already…ouch).
Oil lost its stimulus bid this week and was down 6.3% on the week, after climbing steadily the last few months and nearly reaching $100 per barrel.  Gold (roughly flat for the week), didn’t suffer the same fate, perhaps more influenced by the Japanese printing as more evidence of currency destruction.  Natural gas continues to bounce around, this week down 1.8%, and GPs were led higher by AHGP, TRGP and XTXI.

Latest MLP IPO SUSPect Soars
Despite fear mongering articles targeting some of the new MLPs as higher risk reaching the mainstream financial media this week (including this Wall Street Journal one I was quoted in on Monday), investors willing to take that higher risk have been rewarded by the market so far this year.  With the exception of PDH, this year’s MLP IPO class has well outperformed the MLP Index.  The chart below shows the aftermarket performance of the 13 IPOs in 2011 and the 5 energy MLP IPOs this year so far.  While PDH and NTI both stumbled out of the gate (NTI priced well below the range and popped a few days after the IPO), each of the traditionally structured MLP IPOs popped more than 10% on their opening trading day.
Susser Petroleum Partner (SUSP) was the IPO du jour this week, and it picked a very good week to go public.  Unlike the last several weeks, there was only one other MLP equity offering this week (CQP, which did not go well…), and little other MLP news.  SUSP priced at $20.50, above the midpoint of the price range, for an IPO yield of 8.54%.  SUSP opened at $23.40 (14.1% above IPO price), reached as high as $23.80 before closing at $22.91, 11.9% higher than its IPO price.  A very strong showing, but it was actually the 3rd highest MLP IPO pop of the year, behind HCLP and EQM.  I think my post last week where I talked up Susser’s tacos was the primary reason for the excitement…

Bankers running these post-Facebook IPOs (starting with EQM) have clearly been more cautious about pricing deals to ensure some uplift on day one.  Also, while there is a huge backlog of MLP IPOs waiting to go public, so far the MLP IPO market is on a slower pace than 2011, and that scarcity is probably helping as well.  With Susser off the pending list, the backlog stands at 14 MLP IPOs after Seadrill Partners LLC officially joined the list by filing its previously announced initial registration statement.
Speaking of that backlog, next week we will see another MLP IPO that launched late this week, private equity backed Summit Midstream.  So, we won’t have to wait long to see if the streak of IPO pops will continue.  The trend is your friend, and until an MLP that plans to pay a steady distribution has an IPO that breaks issue, it probably makes sense to ride the MLP IPO wave if given the opportunity.
This is not a specific recommendation of any particular MLP IPO, its assets or merits, just an observation that MLP investors seem to prefer bidding up fresh MLP stories (even if they have higher volatility cash flows than traditional pipeline MLPs) rather than buying the 4th or 5th MLP follow on in the last 2 years from MLPs they already own.
Winners & Losers
SUSP led all MLPs on the positive side and CQP led the losers this week, down 7.1% (and 3.1% down from the offer price on its equity offering this week).  Oil and refined products-focused midstream MLPs also dominated the biggest losers this week (OILT, HEP, BPL and MMP), probably a by-product of oil price declines.  NRGY was nominally down 13.6% for the week, but that disregards the SPH unit distribution that happened at the end of last week.  New SPH investors didn’t seem to immediately run for the exits after receiving those SPH units, as SPH was up 6.5%.

SPH and ARLP escaped the bottom five for the year this week, replaced by NRP and NRGY.  CQP is hanging on to a top 5 spot despite its weakness this week, but OILT dropped out, replaced by EQM.  There aren’t as many clear trends as a few months ago.  There are only 2 coal MLPs in the bottom five, and the propane names are gone with the exception of NRGY.  The top five is varied as well, with two recent MLP IPOs (RRMS and EQM), but also a few MLPs that are recovering from weak years last year.

Exhausted today after waiting in line to get the iPhone yesterday (not that anyone cares to hear my heroic tale of waiting on the sidewalk outside in the dark with no cushion), and coaching U6 girls soccer this morning.  Rest and relaxation on the agenda tomorrow, and maybe another blog post…

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