Stock Pitch for Enterprise Product Partners
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Stock Pitch for Enterprise Product Partners
- 1. Enterprise Product Partners (NYSE:EPD) Matthew | Michal | Jeremy | Lauring
- 2. Agenda Executive Summary Industry Overview Company Overview Valuation and Recommendation
- 3. Company Thesis EPD intrinsic value value - $31.57 Strong Buy @ 24.16: 23.47% Margin of Safety Buy @ 27.16: 13.97% Margin of Safety Strategically positioned to take advantage of international increase demand in
- 4. Executive Summary Market Cap - $56.0B Enterprise Val - $76.8B DPS $1.53 Coverage Ratio 1.3x Capital Projects $8.7B Debt to Equity 1.02 Price 3/31/17 $24.55 Target Price: $31.57 ● EPD is a midstream service company that stores transports and refines crude oil and natural gas. ● Strategically positioned the take full advantage of the increase in demand for NGL’s domestically and internationally (one of first to export GL’s) ● CEO has been with the company for more 17 years. Key Figures EPD Overview Industry Overview ● Increasing demand for NGL’s in the international markets. ● 40 year ban lifted on exporting domestically produced crude
- 5. Industry Overview and Thesis
- 6. Background Upstream Midstream Downstream ● Transportation ● Storage ● Exploration ● Drilling ● Production ● Refining ● Distribution ● Marketing
- 7. Background
- 8. Background
- 9. Background
- 10. Company Overview
- 11. Business Structure %06 34% of LP 66% of LP Public
- 12. Types of Contracts 1. Keep Whole and Margin-Band Contracts take ownership of the mixed NGL extracted, EPD makes the margin in between the cost of the oil and the price it is sold for under contract. 1. Percent-of-Liquids EPD takes ownership of the NGL’s sells them and the difference between cost and price is their revenue. 1. Percent-of-Proceeds Take a percent of the proceeds the producer receives.
- 13. Contract Makeup ● Long term contracts with highly rated E&P companies ● Top 200 account for 95.7% of EPD’s 2015 Revenue ● Only 20 customers or 4.3% of revenues come from sub- investment grade customers ● Therefore low risk profile to weak oil prices / high costs.
- 14. Current Events Acquisitions Enterprise Product Partners (NYSE: EPD) Oiltanking Partners (NYSE:OILT) EFS Midstream LLC Divestitures: Offshore Pipeline & Services Business Segment ???
- 15. ● LPG export expansion ● Aegis Ethane pipeline ● Ethane Export Terminal ● Waha gas processing plant ● PDH terminal ● Infrastructure for crude/refined products ● NGL & Propylene pipeline expansions ● Eagle Ford JV dock
- 16. SWOT Strength ● Asset infrastructure and Integrated Network ● Long-term contracts generally inflation protected. ● In lead position to export NGL’s and crude Weakness ● Macroeconomic Risks (Supply & Demand) ● Upstream bankruptcies nullify contracts. ● Long term debt Opportunities ● Obtain Approval to build a pipeline connecting the northeast region ● Increase in global demand for natural gas Threats ● Correlation between oil prices ● New gas transmission safety rule could add costly expenses to existing infrastructure
- 18. Key Stats of EPD and Competitors
- 19. Key Stats of EPD and Competitors
- 20. Key Stats of EPD and Competitors
- 21. Key Stats of EPD and Competitors
- 22. Key Stats of EPD and Competitors
- 23. Key Stats of EPD and Competitors
- 24. Key Stats of EPD and Competitors
- 25. Sensitivity Analysis of Gordon Growth Dividend Model ● Red is bad case ● Blue is base case ● Green is good case Given our assumptions :
- 27. Three Cases A. At the end of 2017 where will WTI be ? Bad Case =$40 OK Case =$65 Good Case =$95
- 28. $31.57 Bad (10%) Base (60%) Good (30%) Evaluation
- 29. Recommendation and Q&A We believe the stock is a BUY at its current market price of $ 24.64 with a 21.95% upside to $31.57.
Editor's Notes
- MOVE KEY FIGURES TO THE LEFT. Shell and BP account for 13.4% percent of revenue (7.4% and 6% respectively)
- What once was a byproduct of crude oil, NGL, Propane ethane butane and natural gas, is now a major commodity. The U.S was a major storage of this by product. As a result of the increased demand the is need for infrastructure to export the product globally.
- Midstream : Pipelines , Crude Oil Storage ---> Refining ---> Refining Products Storage ----> Refined Products Pipelines Nautral Gas Pipelines ----> Refining -----> Nautral Gas Storage -----> Natural Gas Pipelines---- > Power Generation , Industrial Fuel , Residential Fuel Toll Road with
- Us market is saturated with energy production with natural gas consisting 21% of electricity generation We see this use to stay very close to this level , or decrease which would lead us to believe that natural gas produced in the Us has the ability to be exported out to the US. 38% of nautrual gas in the US is used as feedstock by industries .
- 21% of electricity generation is produced froI m Natural Gas
- 21% of electricity generation is produced from Natural Gas
- 5.9 Billon Which owns and operates 73 storage facilities in 22 countries. EFS Midstream which provides condensate gathering and processing services. Divestitures: Sold offshore business for $1.53 Billion in cash (was the primary makeup of the Offshore Pipeline & Services Business Segment)
- EPD will maintain 55% ownership the others 15% each. The project will include 60 miles of new pipeline increasing capacity by 100%. The system will connect The Cotton Valley and Haynesville plays (Northwest louisiana). The project is supported by long term firm contracts. export Terminal has been expanded increasing loading capacity by 77% to 16 million barrels a month. Capital Projects Houston Ship Channel LPG Aegis Ethane pipeline connects Mont Belvieu, TX and the Mississippi River in Louisiana via a 162 mile pipeline Joint venture with Occidental to develop a million cubic feet per day cryogenic natural gas processing facility. Joint Venture with Anadarko, DCP, and mark west for the formation of the Panola Pipeline.
- This is also assuming that dividends will stay at a constant level of $1.61 annually. If the price of oil goes up , our cost of equity will up and our growth will slow , do to excess supply , created from our upstream contracts who are now unwilling to refine and sell the oil downstream. In our base case of oil , we assume we will grow at 5.2 % dividend which is slightly above gdp growth .
- HAVE A CLEAR PICTURE OF THE FOOTBALL ANALYSIS
- Given oil price moves in the next 5-6 months , we have made 3 cases for where we think oil prices can move. No one know where exactly oil will move in the long term but we have to put this assumption into our model.