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Where KNOP’s Earnings Margin Stands among Top MLPs

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TTM EBITDA margin

KNOT Offshore Partners (KNOP), a Marine Transportation MLP (master limited partnership) involved in shuttle tankers business, ranks fifth among the MLPs with the best EBITDA (earnings before interest, tax, depreciation, and amortization) margins.

KNOP posted a TTM (trailing-12-month) EBITDA margin of 77.9% in 3Q17. KNOT’s high EBITDA margins have been driven by its low operating expenses, which include vessel operating expenses and general and administrative expenses.

KNOT Offshore Partners’ strong EBITDA margins have driven its high net income margins and distributable cash flows. The partnership reported net income margin of 36.2% in 3Q17, but the partnership kept its distribution unchanged that quarter, despite its strong distribution coverage (1.46x).

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Trend in recent quarters

KNOP’s EBITDA margin fell to 77.5% in 3Q17, compared with 79.9% in 2Q17 and 80.5% in 3Q16. This represents QoQ (quarter-over-quarter) and YoY (year-over-year) margin declines of 245 basis points and 303 basis points, respectively. The decline in partnership’s EBITDA margin is due to higher vehicle operating expenses.

Analyst recommendations

Notably, 66.7% of the analysts surveyed by Reuters recommend a “hold” for KNOP, while 33.3% recommend a “buy.” KNOP’s average target price of $23.6 implies a ~17% upside potential from its current price level.

In the next part, we’ll check out TC PipeLines’ (TCP) EBITDA margin.

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