NGL Energy’s valuation
Until now, we’ve analyzed NGL Energy Partners’ (NGL) operating performance, leverage position, and cash flow measures. In this article, we’ll perform a valuation analysis for NGL based on its historical and forward multiples.
NGL Energy’s EV-to-adjusted EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) ratio, using its trailing-12-month adjusted EBITDA, is 12.0x. The current EV-to-adjusted EBITDA is below the last-ten-quarter average of 16.7x. However, NGL is currently trading close to the industry median EV-to-adjusted EBITDA of 12.9x. NGL’s undervaluation relative to its own historical valuation might indicate a buying opportunity. At the same time, NGL’s low valuation might reflect its high leverage, volatile cash flows, and commodity price exposure. Rose Rock Midstream Partners (RRMS), Buckeye Partners (BPL), and Genesis Energy (GEL) are midstream companies that are trading below their historical valuations.
The forward EV-to-EBITDA multiple, which is based on next-twelve-month EBITDA estimate, is 10.2x. However, the EV-to-EBITDA ratio can be misleading in understanding the unit valuation of limited partner units. This is because the entire EBITDA in the EV-to-EBITDA ratio calculation may not be available to limited partners. NGL Energy has IDRs (incentive distribution rights) in its structure. IDRs mean that its general partner gets a higher share of incremental cash flows.
NGL’s forward distribution yield
NGL Energy is currently trading at a forward distribution yield of 8.5%. This is lower than its five-year average distribution yield of 9.3%. The distribution cut and slight recovery in its stock price contributed to the fall in its yield. However, NGL Energy’s yield is higher than other midstream companies’, including Sunoco Logistics Partners (SXL). The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per unit by its market price per unit.