What Does Vanguard Natural’s Valuation Mean for Investors?



VNR’s price-to-distributable cash flow

Up until now, we’ve analyzed Vanguard Natural Resources’ (VNR) operating performance, leverage position, and cash flow measures. In this article, we’ll perform a valuation analysis for VNR based on its historical and forward multiples.

VNR is currently trading at a price-to-distributable cash flow of 1.5x. The partnership is trading at a significant discount to its last ten quarters’ average of 7.8x. The steep decline in VNR’s valuation is due to the energy price rout and general selling in the energy sector (VDE). Peers Memorial Production Partners (MEMP), EV Energy Partners (EVEP), and Linn Energy (LINE) have seen a similar decline in their valuation.

VNR recovering to its pre-energy price rout valuation seems unachievable in the near future. It would depend upon a significant improvement in energy prices, a reduction in the partnership’s leverage, and the resumption of distribution growth.

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VNR’s earnings multiple

VNR’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio, based on its trailing-12-month adjusted EBITDA, is 9.4x. The current EV-to-EBITDA is below the ten-quarter average of 11.3x. VNR’s enterprise value, which is approximately equal to its market equity value plus the net debt, comprises mostly of debt.

The company’s forward EV-to-EBITDA multiple, which is based on its 1Q16 EBITDA estimate, is 7.4x. This indicates expectations of higher EBITDA for VNR in 1Q16. However, when determining the unit valuation of limited partner units, the EV-to-EBITDA ratio can be misleading, as not all EBITDA in the EV-to-EBITDA ratio calculation may be available to limited partners.


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