Phillips 66 Partners vs Valero Energy Partners


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Phillips 66 Partners and Valero Energy Partners have won over many MLP investors, here's how they stack up head to head.

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Phillips 66 Partners vs Valero Energy Partners

  1. 1. Phillips 66 Partners vs. Valero Energy Partners
  2. 2. Buy Battle Determining which MLP to buy will come down to a few key metrics, management’s guidance for the future, and how these MLPs are working to execute their growth plan.
  3. 3. Yield Let’s begin with our first metric: Yield. Neither one of these MLPs boasts an impressive yield. In fact, they’re BOTH among the lowest in the space.
  4. 4. Yield 1.6%1.4%
  5. 5. Yield Whichever MLP you buy, you won’t get much in return. Let’s move on to the next metric.
  6. 6. MRQ Distribution coverage An MLPs distribution coverage ratio should always be greater than 1.0 times distributions paid. Credit rating agencies like Standard & Poor’s don’t give “bonus points” for higher coverage, but it does let investors know how much breathing room an MLP could have for distribution growth.
  7. 7. MRQ Distribution coverage 1.09x coverage Q1 DCF $13.6 million 1.1x coverage Q1 DCF $23.3 million
  8. 8. MRQ Distribution coverage This competition is a bit of a wash so far, both MLPs are very similar. Let’s move on to the growth story. We’ll start with management’s guidance
  9. 9. Management guidance • Distribution growth “well above 20%” • By 2017 PSX’s potential dropdown portfolio will = $1.5 billion • Distribution growth ~20% - ~23% • $800 million EBITDA in potential dropdowns
  10. 10. Actual growth story In February, Phillips 66 Partners spent $700 million on its first acquisition, compared to the $154 million that Valero Energy Partners just announced it would spend on its first deal. Despite the obvious size disparity, both deals will cost roughly 10x annual EBITDA of the purchased assets.
  11. 11. Actual growth story One key difference – the EBITDA generated by PSXP’s first dropdown almost doubled the partnership’s EBITDA at the time of the deal, from ~$75.2 million to ~$145.2 million Not so with VLP, the acquisition is too small to have that impact: ~$55.4 million to ~$70.8 million
  12. 12. Key takeaways • Both of these MLPs are in good shape by MLP standards • Phillips 66 Partners made a big splash with its first acquisition, both have transparent growth strategies • Neither of these MLPs offers much in the way of yield. If you need better income-generating ideas, grab the free report on the next page
  13. 13. A list of more income- generating stock ideas