HCLP, EMES: What Frac Sand MLP Valuations Indicate



Forward EV-to-EBITDA multiple

The forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is a useful metric used to value MLPs. A lower ratio usually indicates undervaluation.

The forward EV-to-EBITDA ratios for Hi-Crush Partners (HCLP) and Emerge Energy Services (EMES) are ~4.0x and ~5.0x, respectively.

As the above graph shows, both Hi-Crush Partners and Emerge Energy Services are trading at significantly lower EV-to-EBITDA multiples than their respective three-year average multiples. Fairmount Santrol Holdings (FMSA) and U.S. Silica Holdings (SLCA) are also trading at multiples lower than their historical averages.

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EBITDA very small or negative

However, it should be noted that EBITDA values, especially in 2016, were very small or negative for both HCLP and EMES, resulting in too high or unmeaningful multiples. That significantly impacts the three-year averages. Still, the current multiples are lower than the levels in 2014 and 2015.

While the valuation looks attractive, it should be noted that both Hi-Crush Partners and Emerge Energy Services haven’t paid any distributions over the last two years. Their distribution yield thus stands at zero.

Let’s see what Wall Street analysts recommend for HCLP and EMES in the next and final part of this series.


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