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An Update on the MLP IPO Experiment

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September 04, 2012 – Comments (3) | RELATED TICKERS: NTI , EQM , NRGM

For anyone who's interested, I just compiled an update on my experiment
of giving the green thumb to every single MLP IPO that I am aware of in
CAPS.  As you can see, since I began the experiment in February I have
added 8 stocks that fit this description to my CAPS portfolio.  They
have indeed outperformed the market thus far by a decent amount...AND
this study actually significantly understates these stocks' gains thus
far because by the time I added the first three candidates back in
February they had already run up quite a bit, I believe double digits
in percentage terms.  Furthermore, I have had to wait for stocks to be
added to the CAPS system before going long them in the game, which in
several instances cost me several percentage points.

So far I'd call this experiment a big success, but the sample size and
time period are still very small.  I may have to start putting my money
where my mouth, or keyboard I suppose one could say, is and buy a few
new MLP IPOs in real life.  We are currently experiencing the annual
lull in IPOs that seems to happen every Labor Day.  Hopefully there
will be some new ones in the near future.

Date Ticker  Gain CAPS Score  
8/28/12 ROYT  +0.96% +1.08
7/30/12 NTI  +26.75% +42.95
6/27/12 EQM  +18.19% +12.23
5/7/12 PDH  -19.57% -22.87
4/18/12 SDR  -0.04% -1.87
2/6/12 MCEP  +5.89% +0.64
2/6/12 LRE  +3.27% -1.98
2/3/12 NRGM         +12.62%  +7.69

Average   +6.01% 4.73

Here's some recent news on one of these companies, Northern Tier Energy (NTI). A bunch of analysts recently upgraded the stock, sending its shares to a new high today. Here's what I had to say about NTI at the end of July:

"Here's yet another MLP IPO, which historically have significantly outperformed the S&P 500.

I realize that its yield is variable, but at its current planned distribution rate Northern Tier Energy (the name of the company is wrong here in CAPS) has a current yield of nearly 19%.

I have no love for refining, but the business will continue to exist for quite some time plus NTI owns more than just a refiner, it has storage tanks, a dock, pipeline interests, etc.

When the yield-hogs realize how huge this company's distribution is, variable or not, they will likely chase the stock and drive up it's price.

Regarding the variable nature of the dividend payment, let's face it, all dividends are ultimately variable. Either a company is going to earn enough to sustain its payout or it won't. If a company isn't making enough money to maintain its payment it will eventually have to be cut. Paying out a dividend in excess of available cash maintains the illusion of consistency, but ultimately is not sustainable."

Here's what Credit Suisse recently had to say about the company in its upgrade note:

"Bottom Line – High Yield Makes NTI Attractive: NTI owns one of the most
profitable refining assets in North America and management are sharing the resultant cashflow with investors in a no-incentive distribution rights (IDR) variable MLP. Mid-continent margins are high today, supporting an estimated $565m of EBITDA for NTI in 2012. As pipelines get built to bring landlocked crude to market, EBITDA should compress. However, even in our notional “mid-cycle” environment, NTI’s geographical position should support healthy EBITDA of $290-330m per annum (pa) depending on the year. Translating this into a distributable cash flow yield, NTI could yield 17% over the next 12 months and 13-15% on a mid-cycle basis. We initiate with an Outperform rating in the MLP universe and $22/unit target price..."

Deej

3 Comments – Post Your Own

#1) On September 04, 2012 at 3:35 PM, TMFDeej (99.39) wrote:

Ah ha, I just found another one.  That's one of the problems with tracking this here in CAPS without setting up a specific portfolio to do so.  I have to read my pitch on every company to remember which ones erre the MLP IPOs, or memorize all of them...which isn't going to happen.

8/20/12

HCLP

-0.15%

+0.43

Deej

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#2) On September 04, 2012 at 6:14 PM, awallejr (82.97) wrote:

Good job.

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#3) On September 05, 2012 at 11:20 AM, Mega (99.95) wrote:

Not bad. It looks like NTI has performed so well because it was offered well below the initial range.

You may already know this, but IPO Desktop is a great resource for IPOs. http://seekingalpha.com/author/ipodesktop/articles

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