Magellan Midstream Partners LP (MMP)
Magellan Midstream Partners LP (MMP), is a master limited partnership (or MLP) that owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores, and distributes refined petroleum products. Its pipelines run from the Texas Gulf Coast to Colorado, Illinois, Minnesota, and North Dakota. It also pipes ammonia from Texas and Oklahoma to the Midwest. Customers include independent and integrated oil companies, wholesalers, retailers, railroads, airlines, and regional farm cooperatives.
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As of April 7, 2014, the company had a market cap of ~$16 billion and an enterprise value of ~$19 billion. MMP’s revenue for LTM (the last 12 months) as of December 31, 2013, totaled $2 billion. Adjusted EBITDA over the same period was $844 million and distributable cash flow amounted to $670 million. At a current unit price of $72.37, and given the latest quarterly distribution of $0.58 per unit, MMP has a current yield of 3%.
MMP as a component of AMLP
Magellan Midstream Partners LP (MMP) is the fourth largest component of the Alerian MLP ETF (AMLP) and is weighted at 7.01%. So factors affecting MMP would significantly affect AMLP as well. Note that other MLPs in AMLP include Enterprise Product Partners (EPD), Plains All American Pipelines (PAA), and Kinder Morgan Partners (KMP).
Positive growth drivers
Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes the longest U.S. refined petroleum products pipeline system (9,600 miles) and many petroleum terminals with more than 80 million barrels of storage. Also, the company doesn’t pay general partner incentive distributions (or IDRs), which means that LP unitholders get a greater proportion of distributable cash flow growth than would be the case if the GP had IDRs.
In 2013, MMP spent ~$773 million on growth projects, acquisitions, and investments in non-controlled entities. The recent Permian Basin pipeline, Longhorn, and BridgeTex are expected to be completed in mid-2014 and will be a significant source of growth for Magellan. The projects are expected to add incremental pipeline capacity of 1,072 thousand barrels per day in the Permian, a key source of organic growth for the firm. Also, $550 million in expansionary projects are underway in 2014, along with potential expansion projects of more than $500 million. MMP expects 2014 distributable cash flow of $730 million, as compared to 2013 DCF of $670 million, due primarily to contributions from recently completed growth projects.
Negative growth drivers and risks
MMP has numerous large expansion projects underway that have required and will continue to require significant capital investments. However, the operating cash flows from these projects won’t materialize until sometime after the projects are completed. Also, there are risks that the projects are not executed as planned or do not generate as much cash flow as planned.
MMP has set 2014 DCF guidance at $730 million and an EBITDA guidance of $935 million. Net income per limited partner unit is estimated to be $2.90 for 2014, with first-quarter guidance of $0.70.
To find out more about the benefits of investing in MLPs, see Market Realist’s Guide to MLPs.