The MLP Index was up for a 5th straight week, matching the S&P 500’s positive week on a total return basis. The S&P 500 was up 0.8% and MLPs were up 0.3%, but +0.9% counting distributions. Strong MLP earnings and generally positive 2014 outlooks helped MLPs trade well even with a slew of ex-distribution dates, which are typically a drag on MLP prices this time each quarter. Liquid energy commodities were positive this week: oil closed just below $100/bbl, ethane was up 14.3% to $0.40/gallon, and propane traded up 5.9% to $1.66/gallon. Natural gas front month futures price dropped 3.4%, but remains 10% higher year to date.
It was a fairly unusual week here in the Philadelphia area (at least I hope its unusual), on top of an already unusually awful winter to date (or so people tell me). Heavy snow blanketed the city Monday, then Tuesday night an ice and rain storm caused branches around town to fall to the ground, sometimes passing through power lines on their way down (below is a pic of the tree in my neighbor’s yard). More than 650,000 homes and businesses lost power Tuesday night. Our office has a generator that kicked on, so we operated through the outage, but between the snow day Monday and the outages, my daughter only had a half day of school this week, which means an increasingly short summer.
The electric utility companies prioritized repairs based on the number of people impacted in a given area. It turns out my street’s issues were very low on the list, and it wasn’t until 7pm Saturday that power service was restored to my house. Given high 20s temperatures outside, the temp in my house dropped to as low as 42 degrees. We fortunately had another place to stay, so we abandoned our house. Now that we’re back in everything will get back to normal this week, but there are still a few thousand folks out there without power and without the convenience of a warm alternative. So, forgive me if this week’s post is a bit light on insight.
Winners & Losers
NS’s earnings release sent its unit price shooting 9.0% higher this week, all the way up to levels not seen in…2 months. TLLP reported results that seemed to be lower than the street expected, but the market liked [something about them]. GSJK was down the most on now news, except for last week’s distribution increase, but perhaps there was read through from poor weather impacting their operations in certain areas. EPB may have been down on investor rotation into SEP, which reported this week and is a comp of EPB. But SEP announced distribution guidance calling for 7%+ distribution growth in each of the next two years, compared with 0% for EPB.
For the year so far, IPO Cypress remains comfortably in the lead and there remains a wide disparity among the best and worst performing MLPs.
News of the (MLP) World
No equity deals this week, but several MLPs made their intentions to issue equity explicitly known, with a fresh IPO filing, a few shelf registrations and a fresh ATM. The first debt offerings of the year were large, popular and priced at attractive rates.
Earnings season continued with several high profile MLPs reporting largely positive results. PAA beat analyst expectations and raised its growth capex estimate for 2014, but trimmed guidance slightly. NS’s EBITDA for the 4th quarter were light of consensus estimates, but guidance that calls for 1.0x distribution coverage in 2014 was welcomed by the market. NS management is clearly focused on achieving distribution coverage, given their press release headline highlighting NS’s “highest quarterly distribution coverage since 3Q 2011” (at 0.89x!) (press release). MMP reported strong results due to high activity on its midwest refined products pipeline network, and raised distribution growth guidance to 20% for 2014.
The next week of earnings announcements should be interesting as well. Larger MLPs BWP, EEP and NGLS all report next week, along with high growth MLPs NGL and EQM. BWP and EEP have recently struggled with sub-1.0x distribution coverage ratios, and the market will be eager to see if coverage is moving in the right direction.
M&A / Growth Projects