How TC PipeLines Comes in 6th Place among Top MLPs
TTM EBITDA margin
The top five MLPs (master limited partnerships) in terms of EBITDA (earnings before interest, tax, depreciation, and amortization) margin include:
- Viper Energy Partners (VNOM)
- Golar LNG Partners (GMLP)
- Dorchester Minerals (DMLP)
- EQT Midstream Partners (EQM)
- KNOT Offshore Partners (KNOP)
TC PipeLines (TCP) comes in sixth place.
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TC PipeLines is mainly involved in natural gas transportation and posted a TTM (trailing-12-month) EBITDA margin of 77.2% for 3Q17. Its EBITDA margins have been driven by involvement in the high-margin natural gas transportation business, but its slightly lower EBITDA margin (compared to EQM) could be attributed to its higher operation and maintenance expenses.
TC PipeLines’ low-interest expenses and strong EBITDA margins have been its high net income margins and distribution growth. The partnership reported net income margin of 55.0% for 3Q17 and posted a YoY distribution growth of 6%.
Trend in recent quarters
TCP’s EBITDA margin fell to 76.0% in 3Q17, compared with 87.9% in 3Q16, which represents a YoY (year-over-year) fall of 1,190 basis points. The decrease in its EBITDA margin was likely due to the slight fall in its revenues and its higher operating expenses.
According to its 3Q17 earnings release, the increase in its operating costs was due to “higher pipeline integrity on Gas Transmission Northwest (GTN) and overall higher allocated management and operational expenses.”
Notably, 60% of the analysts surveyed by Reuters recommend a “hold” for TCP, while 20% recommend a “buy,” and 20% recommend a “sell” as of December 5, 2017.
TCP is now trading below the low range ($53) of the analysts’ target prices. The partnership’s average target price of $59.1 implies a ~20% upside potential from its current price level.
Now let’s look at Rice Midstream Partners’ (RMP) EBITDA margin.