The S&P 500 inched up 0.7% this week to close at a fresh all-time high. Crude futures closed at a fresh 52-week high at just above $108/bbl. Propane closed at its highest price in more than 2 months, up more than 9% week over week, and natural gas was up 3.8%. Treasuries were up (sending rates slightly lower). Hell, even ethane and gold were up.
You would think this commodity rally, interest rate tightening and peaking stock market would push MLPs higher. But there was a lot of MLP paper printed this week, with two follow-on equity offerings and two MLP IPOs on the road, and that seemed to weigh on the sector. The Alerian MLP Index was down 0.7% for the week.
For the year, MLPs are up 23.3%. Publicly-traded MLP GPs are up 29.1% for the year, despite all GPs except ATLS being down for the week, led by 4.2% drop from ETE. Variable distribution MLPs are lagging, but were up this week, led by EMES up 8.3% after its distribution announcement.
Kinder Morgan’s family of public companies reported earnings this week that were largely in line on overall EBITDA, but came in light on DCF/unit and distribution coverage compared with consensus expectations. Distribution coverage was lower than 1.0x, but Kinder reminded the conference call crowd that it expected lower coverage this quarter would be balanced by higher coverage in future quarters and for the whole year. Kinder also mentioned that KMP has $14bn in organic growth projects in the hopper, including $5.4bn in KM Canada.
In the coming week, we’ll have more distribution announcements, and earnings season really kicks off week next week. When earnings season starts, the focus will be on upstream MLPs after all the buzz they’ve received, and on a few MLPs that might be in trouble with persistently low NGL prices and growing oversupply of condensate in certain areas.
The big thing to watch in the coming week is the latest household brand-name, refined products MLP (Phillips 66 Partners), which is priced (at the midpoint filing range) like a GP at 23x distributions (4.25% yield), and I guess it better grow like one to keep up its premium valuation. It will be the first MLP IPO since Tallgrass a few months ago, but it will be the 8th MLP IPO of the year.
The 9th MLP IPO, Marlin Midstream (FISH), is also expected to price next week at 7% midpoint yield, which is lower than similar smaller gathering / processing MLPs to price recently (SXE and SMLP both had 8% yields in their 2012 IPOs).
We didn’t get our 9th MLP IPO last year until late October, and at this time last year we had only seen 2 MLP IPOs price. So, we could be headed for a record IPO year. Below is a quick list of MLP IPOs since beginning of 2012 and their IPO yields.
Winners & Losers
LINE continued its recovery and led the entire sector in performance since last Friday. The sellers are harder to find, both in the market and online. But you also won’t find research analysts pounding their chests on Twitter about how the shorts have been wrong this week. Some analysts would probably like to, but FINRA wouldn’t like that too much.
Speaking of chest pounding, USAC was up 5.9% this week and closed the week at a fresh all-time high, and ARP was in the top 5 for the second straight week… High-distribution growth MLPs GEL and TLLP were at the bottom of the heap this week, which is rare for them (although it was 2nd week in a row that TLLP was in bottom 5). GEL announced a 2.5% distribution bump last week and TLLP announced a 4.1% distribution bump, but it seems like one household name-brand refined products MLP (TLLP) may be getting traded in for a new one in the IPO market this week (PSXP). Interesting stuff.
For the year, the bottom five list didn’t change constituents, but LRE and LINE both hopped up one spot. On the upside, HCLP rejoined the top five, displacing EXLP.
In other news, the Tigers’ city is officially broke and Tiger is in contention (as I write) at the Open Championship, and its still swamp-ass hot here in Austin… Have a good week.
News of the (MLP) World
M&A / Growth Projects