ENLK’s Current Valuation Might Indicate a Buying Opportunity
So far in this series, we discussed EnLink Midstream Partners’ (ENLK) recent stock performance and operating performance. We looked at the partnership’s financial position and cash flow measures. In this part, we’ll analyze EnLink Midstream Partners’ current valuation based on its historical and forward multiples.
EnLink Midstream Partners was trading at a price-to-distributable cash flow of 9.4x as of September 26, 2017. Currently, the partnership is trading below the average of 10.7x in the last ten quarters.
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EV-to- EBITDA multiple
EnLink Midstream Partners’ forward EV-to-EBITDA multiple, which is based on the next 12-month EBITDA estimate, was 11.5x as of September 26. It was slightly above the last five-year average of 11.3x. It’s trading above the peer median multiple of 10.7x.
However, the EV-to-EBITDA multiple could be misleading in understanding EnLink Midstream Partners’ unit valuation because it has IDRs (incentive distribution rights) in its capital structure. Due to IDRs, the entire EBITDA isn’t available for common unitholders. The IDRs entitle EnLink Midstream LLC (ENLC), EnLink Midstream Partners’ general partner, a higher share of incremental cash flows.
EnLink Midstream Partners was trading at a distribution yield of 9.4% as of September 26. The ratio is above the historical five-year and one-year average of 7.7% and 9.0%, respectively. However, it’s lower than the two-year average of 10.0%. DCP Midstream (DCP) and Western Gas Partners (WES) are trading at a yield of 9.2% and 7.0%, respectively. Notably, EnLink Midstream Partners’ distribution yield is also higher than the Alerian MLP ETF (AMLP) at 8.0%.
Two out of the three measures indicated that EnLink Midstream Partners is trading at a discount to its historical valuation. It might indicate a buying opportunity in the stock considering its strong expansion opportunities in the prolific Delaware and STACK regions. Also, it has low leverage compared to most of its peers. The current valuation might also reflect EnLink Midstream Partners’ commodity prices exposure, low distribution coverage, flat distributions, and falling throughput volume in some regions.