MLP Protocol 092112

Key Adjustments from last week:

  • Adjusted CQP for an 8.0 million unit offering priced at $25.07 on September 19.
  • Added Susser Petroleum Partners, L.P. (“SUSP”) to the Downstream & Marketing segment after its very successful IPO at $20.50 on September 19.
  • Now including the full ranking of all of the MLPs under the 3YR FYAT / VCR metric in the Weekly Snapshot (Subscriber Version).

I am impressed with the market reception of SUSP as I would have preferred to buy units closer to $17. I posted an article to Seeking Alpha about the IPO on the morning of pricing: MLP IPO Review: Susser Petroleum Partners, L.P. The strong reception of SUSP augurs well for the current MLP IPO backlog so expect MLP IPOs to be continually coming to market this fall until the market hits a near term saturation point.

Summit Midstream Partners, L.P. is currently out on the road and looking to price $250 million of units for its IPO with an initial estimated yield of 8%. They are planning on pricing the deal this Thursday. I will endeavor to get a review up on Seeking Alpha some time on Thursday.

MLP Protocol Weekly Snapshot report:  MLPP 092112 Snapshot vFree

Article explaining the theories/logic behind the Valuation Coverage Ratio and the 3 Year Forward Yield / Valuation Coverage Ratio tools.

MLP Protocol Monthly Analytics preview (current full Monthly report is longer due to the addition of the Downstream & Marketing segment)

MLP Protocol Asset Book preview (the Asset Book is updated annually)

About Philip Trinder

President of MLP Protocol, investor, trader, and proponent of Master Limited Partnerships.
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2 Responses to MLP Protocol 092112

  1. Hi Ron,

    Unfortunately the editors at Seeking Alpha incorrectly did a “find and replace” in my article and changed “AMZ” to “AMJ.” The article was focused on the Alerian MLP Index, which is an Index with the ticker “AMZ.” “AMJ” is the JP Morgan Alerian MLP Index Exchange Traded Note, so AMJ is an instrument based upon the AMZ index data and since it is an ETN run by JP Morgan it’s similar but definitely different than the actual index itself. So the analysis I did in the article is all based on the actual Alerian Index data which can be found here and had nothing to do with the JP Morgan ETN.

    OK, so the AMZ Index is currently at a yield of around 6.11% (so a better yield than the JP Morgan ETN probably because of the embedded costs and expenses from JP Morgan in the ETN etc.) and the 20 year U.S. Treasury was at a yield of around 2.57% (both as of Friday 9/21/12). The spread between the two is 354 basis points which is still above the median spread in the historical data of 224 basis points and also above the average spread of 258 basis points, which leads me to believe that in an overall sense MLPs are not generally overvalued relative to the competing investment choice of U.S. Government Debt. This is a relationship that I watch constantly.

    If you look at your September Monthly Analytics report on page 20 I have the time series chart at the top of the page showing this relationship since the beginning of 1996. On that chart you’ll notice that during the first half of 2007 that AMZ Index yield spread to the 20 year U.S. Treasury became very narrow and dropped below 100 basis points due to the very strong run up in MLP prices. That to me is an indication of MLPs becoming very overvalued in a relative sense so if/when that spread compresses to less than 100 basis points again I will be selling publicly traded MLP positions left and right. If that spread gets below 150 basis points I will be extremely nervous about my MLP positions. I’ll make a note to try and add some visual cues to the charts on that page for the October report I’ll be doing this coming weekend. The market of course will never make it that simple but still the spread to me is a good general warning signal (like a canary in a coal mine).

    We have had a great run in MLP prices recently though so I am definitely thinking they will have to pull back at some point, especially with all of the new MLP IPOs that are trying to come to market (i.e. an increase in the supply of MLP paper). So even though the AMZ Yield Spread to the 20 Year U.S. Treasury is still pretty wide I would be cautious in adding to MLP investments up at these levels (unless they are a really compelling relative value compared to other MLP investment choices).

    Thanks for reading the article and posting your question and please feel free to follow up if my explanation is unclear.


  2. ronnypearson says:

    Phil ” In reading your Aug. 24th article MLPs and Relative Value Verus US Treasuries .
    See if I understand this
    AMJ current yield is 5.04% and the 20 year treasury is 2.53% AMJ 251 basis points above the 20 year,so MLPs are still
    Not overvalued. Am I understanding that correctly ? Thanks Ron Pearson

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