What Does Antero Midstream Partners’ Current Valuation Indicate?
Antero Midstream Partners’ price-to-distributable cash flow
So far in this series, we’ve looked at Antero Midstream Partners’ (AM) recent market performance and operating performance. We’ve also looked at its balance sheet position and cash flow measures. Now let’s do a valuation analysis based on its historical and forward multiples.
The partnership is currently trading at a price-to-distributable cash flow of 14.6x. That’s below the last eight-quarter average of 17.6x.
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Antero Midstream Partners’ forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio using the next 12-month EBITDA is 9.9x. That’s below the historical average of 14.4x. It’s also below the peer median of 11.0x.
However, the EV-to-EBITDA ratio can be misleading when trying to understand the unit valuation of Antero Midstream due to the presence of IDRs (incentive distribution rights) in its capital structure. The entire EBITDA may not be available to limited partners. IDRs entitle its general partner, Antero Midstream GP, to a higher share of incremental distributions.
Antero Midstream Partners is currently trading at a forward distribution yield of 4.1%. That’s above the historical average of 3.5x. AM’s peers EQT Midstream Partners (EQM) and Rice Midstream Partners (RMP) are currently trading at 5.0% and 5.4%, respectively.
What does AM’s current valuation reflect?
Antero Midstream Partners’ current valuation looks attractive and indicates a buying opportunity at these price levels, considering its minimal commodity price exposure, strong distribution growth guidance, impressive distribution coverage, low leverage, strong presence in the prolific Northeast region, and significant expansion opportunities. According to the partnership, it currently has a “$5.0 billion organic project backlog and ~$1.0 billion downstream investment opportunity set.” The downstream opportunity set includes natural gas and NGL (natural gas liquids) transportation and storage services. The partnership expects to spend $800.0 million on organic expansion and maintenance by the end of 2017. That’s $275.0 million more than the earlier guidance of $525.0 million. The rise is due to AM’s processing and fractionation joint venture with MPLX (MPLX).