PAA

Publicly traded companies mentioned herein: Blackstone Group LP (BX), Brookfield Asset Management Inc (BAM), Enterprise Products Partners LP (EPD), MPLX LP (MPLX), Magellan Midstream Partners LP (MMP), Plains All American Pipeline LP (PAA)

Highlights

Following the recent declines seen across energy MLPs, the presenter said he is bullish on several members of the group. He focused his comments on Plains All American (PAA), which he is long at $19, as it appears to be meaningfully undervalued following a ~60% decline since early 2015 (PAA is down ~40% YTD). Backstopping his bullish view of the midstream space is a belief in the U.S. shale cost curve and bullishness on U.S. production with oil at ~$55 per barrel. Distribution cuts have hurt (many MLPs have seen unit price declines from 25-70%, or worse), and Plains’ cut to $1.20 per unit (from a high of $2.80 in late 2015) was larger than the $1.80/ unit level the Street expected. However, given the restructurings many of the MLPs have undertaken, fundamentals have shifted, and the businesses are no longer reliant on the capital markets the way they used to be. Additionally, capital intensity is going down, and with 20-30% operating leverage the EBITDA growth is coming “for free”. PAA, Enterprise, and Magellan are among the most interesting; but many are throwing off double digit FCF yields looking out to 2020. He thinks investors can see 30% capital appreciation, while clipping an attractive 6-7% yield in PAA.