Power Transfer: 15.2% Spread Expansion to Q3 Earnings Totally Bullish | Whuff News


it’s a chord

For a while, Big Tech was the crown jewel of the market, and energy companies couldn’t get a bid. While the tech giant still represents the largest component of the S&P 500, on a YTD basis, not even Apple (AAPL), which I think it is the best company in the market, it could not withstand the wrath of Mr. While growth companies languished and tech giants saw their prices squeeze, energy trading was alive and well. SPDR S&P 500 Trust (EXAMINATION) is down -18.57% YTD, making a slight comeback in bear market territory, while the Energy Select Sector SPDR ETF (XLE) is worth 55.98%. Two of the largest energy infrastructure ETFs also offer protection through 2022 such as the ALPS Alerian MLP ETF (AMLP) rose 23.07%, and the Global X MLP & Energy Infrastructure ETF (MLPX) is worth 15.72%.

Power transfer (NYSE:ET) has been a long-time favorite of mine in the MLP space, and I’ve proven many times that its valuation is not justified. Going into Q3 earnings ET has delivered strong news and, recently, increased its distribution by 15.2% just days before the 11/1 earnings release. The dividend will be paid on 11/21 to shareholders as shares will trade at the 11/3 ex-dividend. ET could have announced this in their earnings release, but they didn’t. I believe this news is published before the earnings are seen and the earnings report will be full of good news. I believe the combination of Kelcy Warren buying 3 million additional ET units, the LNG contracts with Shell, and the 15.2% increase in Distribution are all bullish signs, and ET’s earnings will as a catalyst for units to come out on top.

Prices

Seeking Alpha

Power Transmission delivers on its promise to restore transmission to previous levels

Bears live in the past and don’t give credit where it’s due. Some investors cannot get over the fact that ET has not recovered to its 2015 levels, some do not agree with the management’s decisions regarding the acquisition as the level of debt is still large, and others do not agree with the early reduction in distribution. The facts are that in the fall of 2020, ET decided to reduce the amount of Distributable Money. [DCF] it pays out to shareholders in the form of its distribution to increase its retained DCF and focus on reducing its leverage. Management has been transparent since the decision to reduce distribution, and on the Q2 earnings call, Tom Long reiterated that future increases in ET’s distribution will be reviewed quarterly. Mr. Long also said that the goal of ET is to return the distribution to $ 0.305 per quarter or $ 1.22 per year while balancing the ratio of ET’s leverage ratio. We are probably 1 increase in the spread away from those goals as ET lives up to its promises which is a hard pill for bears to swallow.

The quarterly distribution was reduced by 50%, decreasing from $0.305 to $0.1525 in Q3 2020. For 5 consecutive quarters, ET has kept its quarterly distribution payment at $0.1525, and throughout 2022, ET has done nothing but provide an increase in quarterly distribution. In Q1 2022, ET presented its first distribution increase of 14.75% to $0.175. In Q2, ET raised its dividend by 14.29% to $0.20. In Q3, ET introduced another 15% increase in distribution, bringing its quarterly distribution to $0.23. Entering Q4 earnings, ET offered a 4-fold increase in distribution, raising its quarterly distribution by 15.2%, putting the quarterly distribution at $0.265. For any investors who were skeptical of ET’s strategy, there is no reason to distrust management now. The average quarterly distribution increase in 2022 was 14.81%. If ET were to raise its dividend in 2022 at an average quarterly rate, the distribution paid in Q1 of 2023 would be $0.3043, that is, for all intents and purposes, where it was before reducing the distribution. If ET delivers a strong earnings report, there is a good chance that investors will see the quarterly distribution for Q1 2023 show $0.305, and ET will have achieved its goal of returning distribution to $1.22 per year.

This should be viewed as bullish, and any investors who have entered a position in the past two years should be very happy. Long-term investors have experienced nothing but capital destruction along the way, but things are getting better, and ET is quickly grinding its way to the top. If ET was not in a strong financial position, they will not continue to increase the distribution, and investors should put their grudges from the past years and trust that the management team they are invested in will continue to deliver in the future.

Divisions

Seeking Alpha

I think ET will post strong Q3 results and here’s why

Exxon Mobil (XOM) recently reported its biggest ever quarter as Q3 revenue reached $19.66 billion. Q3 revenues increased 52% YoY from $73.78 billion to $112.07 billion as its production totaled 3.7M boe/day. XOM posted a record quarter from the Permian Basin of nearly 560K boe/day, with gas realizations up 22%. Chevron ( CVX ) reported $66.64 billion in revenue in Q3, which was a 49% increase YoY. CVX residual liquids production increased 49 MB/D, oil-equivalent natural gas production increased 49 MB/D YoY. Greater oil production increases, and this means more oil will flow through the ET system.

Infrastructure

Power transmission

Regardless of the location of the rigs, a large part of the oil taken from the American soil is distributed through ET bases. ET has 11,300 kilometers of crude pipelines and 1 million BPD of takeaway capacity in the Permian alone. ET is connected to 6.8MMbbls/d of domestic refining capacity and owns 1.1MMbbls/d of export capacity to the gulf coast. ET also has 65.6 million barrels of terminal capacity in its crude division. When it comes to NGLs, ET has 5,200 miles of pipeline, then another 3,600 miles of pipeline dedicated to refined products. ET has 53,500 miles of pipelines in its interstate segment with 11.2Bcf/d of processing capacity and 26,900 miles of interstate pipelines with 31 Bcf/d of output capacity and 147 Bcf/d of storage capacity.

The majors are increasing production, and that means others, such as Occidental Petroleum (OXY), and ConocoPhillips (COP), have increased production. There is a strong possibility that this will mean fee-based and take-or-pay contracts for ET as they will need a more efficient transportation system. As more drilling occurs the need to transport this fuel increases, and ET has the largest system connected to all needs, from export facilities to cracking terminals. I think this is a solid setup for increased revenue, not just in Q3, but for many quarters in the future.

ET’s forecast is still attractive going into Q3 earnings even though its units have increased significantly in 2022.

Entering Q3 ET estimates are still attractive, and I’ll compare them to an extended peer group I’ve created, which includes

  • Enterprise Product Partners (EPD)
  • MPLX LP (MPLX)
  • Kinder Morgan (KMI)
  • Plains All American Pipeline (PAA)
  • Williams Companies (WMB)
  • Targa Resources (TRGP)
  • Magellan Midstream Partners (MMP)
  • OK OK)

The EV/EBITDA metric is a popular valuation tool that helps investors compare companies as EV calculates a company’s net worth or assessed value, while EBITDA measures a company’s overall financial performance and profitability. ET trades at 8.43x compared to a peer group average of 10.40x, indicating that it trades at a more attractive level than its peers.

EV

Steven Fiorillo, looking for Alfa

I’m a strong believer in looking at the Adjusted EBITDA to market cap ratio because Adjusted EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) basically tells you how much money is left over after paying the operating expenses of the business, except for one time. debts. I want to see how much I pay in Adjusted EBITDA for the average driver. ET and Plains All American ( PAA ) are neck and neck at 3.23x and 3.24x multiples on their Adjusted EBITDA to market cap. By this metric, ET is undervalued compared to its peers.

Adjusted EBITDA

Steven Fiorillo, looking for Alfa

ET trades in DCF at a market cap ratio of 4.83x. WMB and OKE do not report DCF in their quarterly reports, which is why their numbers are blank for this metric. From the other 7 companies, the DCF to market cap average is 7.11x. ET trades at the 2nd lowest in its peer group on this metric.

DCF

Steven Fiorillo, looking for Alfa

While the ET certainly seems undervalued, the main complaint over the years has been its debt and leverage ratio. I look at the total debt to Adjusted EBITDA ratio to see if ET’s debt is out of control or relative to peers. The ET case is on the higher end of the spectrum, but it’s a solid 3.15x to 4.37x range. The peer group average is 3.74x, and ET trades slightly above it, at around 4.09x.

Debt

Steven Fiorillo, looking for Alfa

To conclude

I believe the Q3 earnings will act as a catalyst for ET units. The main factor is increasing productivity, which should drive revenue and DCF growth. ET has already announced its 4th increase in pre-earnings distribution which I take as a bullish sign. Last year, ET increased distribution by 73.77%, and there is no reason why distribution cannot be fully restored in the first half of 2023. unit, and if I’m correct, investors will realize massive capital appreciation while collecting massive distributions along the way.



Source link