uploads/2018/01/TLP.png

TransMontaigne Partners: Low Valuation a Plus for Top MLP Picks

By

Updated

TransMontaigne Partners

TransMontaigne Partners (TLP), the midstream MLP mainly involved in refined products terminaling and transportation, could be a top-performing MLP for 2018. TLP, which gets a low score in terms of distribution growth compared to other top MLPs, benefits from its extremely low valuation compared to its peers and the historical average. However, low trading volumes (or liquidity) also remain a concern for TLP stock.

Article continues below advertisement

Valuations

TLP was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 6.7x as of January 5, 2018. That’s below the one-year and five-year averages of 9.0x and 10.9x, respectively. TLP’s EV-to-EBITDA multiple is also well below the peer median of 9.5x. Its current distribution yield of 7.3% is higher than the one-year average of 6.8%.

Leverage

TLP’s leverage position is better than its peers Buckeye Partners (BPL) and NuStar Energy (NS). TLP’s net debt-to-EBITDA of 3.5x is below the industry standard.

Article continues below advertisement

Earnings growth

TransMontaigne Partners is expected to post YoY (year-over-year) EBITDA growth of 44% in 2017 compared to 2016. Analysts expect EBITDA CAGR (compound annual growth rate) of 28.3% during the 2018–2020 period. At the same time, TLP is expected to grow its distribution by 6.4% CAGR. Its strong EBITDA growth is not expected to translate into strong distribution growth. That could be due to TLP’s slightly higher leverage and strong growth plans. However, TLP’s distribution growth expectation is still higher than the industry median target of 2% for the 2018–2020 period.

Analyst recommendations

About 60% of analysts rate TLP a “hold,” and the remaining 40% rate it a “buy.” TLP’s peers Buckeye Partners and NuStar Energy have “hold” ratings from 53.3% and 80% of analysts, respectively. TLP is currently trading below the low range of $44 of analysts’ target price. TLP’s average target price of $48 implies a ~17% upside potential from the current levels.

Advertisement

More From Market Realist