Memorial Production Partners LP (MEMP): An updated Net Income & Cash Flow Forecast Model has been posted under the MLP Tab.
This upstream MLP is going to get a big revenue boost from the spike in NGL prices. I have increased by Fair Value Estimate to $26/unit. The current yield is over 10%.
MEMP
Re: MEMP
Re: Memorial Production Partners LP (MEMP) ... --
JPMorgan Initiated coverage at Overweight with $23.00 target.
Small-Cap Value, Mid-Cap Growth – Initiate Coverage of MEMP and BBEP at Overweight
We initiate coverage of MEMP with an Overweight rating and YE14 PT of $25 given the partnership’s strategic growth relationship with its GP, MRD, and low-cost operations.
We also initiate coverage on BBEP with an Overweight rating and YE14 PT of $23 given what we see as its outpaced distribution growth potential relative to its E&P MLP peers. We highlight MEMP for value-oriented MLP investors and BBEP for growth-oriented MLP investors.
Still constructive on the upstream MLP space. In our view, the discount on a yield basis relative to other MLP sectors compensates investors for commodity- price exposed cash flows. Supply-demand fundamentals also support our stance, in line with the positive supply outlook from the JPM Global Commodities team, which forecasts US crude supply to grow to 8.5 MMBbls/d (+12%) and dry natgas production to rise to 67.6 Bcf/d (+1.3%) in 2014. Although the commodities team expects crude price volatility to remain high, MLP E&Ps hedge a significant portion of production. We see M&A fueling growth next year with E&P C-Corps running a reinvestment rate median of ~117% based on estimates from JPM E&P analyst Joseph Allman. While our overall view remains constructive, we favor E&P MLPs that we consider better positioned to benefit from the current outlook and highlight MEMP, BBEP, and VNR as top picks in the E&P MLP space.
Memorial Production Partners LP (MEMP): Low-cost operations, strategic partner to drive growth. We expect MEMP to continue growing via M&A and drop-downs that leverage the scale and size of its GP, Memorial Resource Development (MRD). MRD enables MEMP to joint-bid on assets that may otherwise not be accessible due to MEMP’s size. Given the partnership’s smaller size vs. peers, smaller transactions can be meaningful drivers of growth, compared to larger-cap names that may require transformational or larger transactions to grow. In our view, MEMP’s growth potential overshadows relatively greater undeveloped reserves and warrants a premium valuation to peers. As MEMP’s tenure as a public partnership increases, we see the high yield compressing.
BreitBurn Energy Partners LP (BBEP): Top-tier distribution growth among peers; M&A key driver. We forecast a distribution CAGR of more than 5% over the next two years, one of the highest among E&P MLPs under our coverage. We expect BBEP to continue its successful M&A growth strategy due to a lower cost of capital (no IDRs) and diversified production portfolio that provides scale and scope. Despite the partnership’s strong track record and growth potential, BBEP trades near avg. valuation levels; we believe the units merit a premium and see room for upside.
JPMorgan Initiated coverage at Overweight with $23.00 target.
Small-Cap Value, Mid-Cap Growth – Initiate Coverage of MEMP and BBEP at Overweight
We initiate coverage of MEMP with an Overweight rating and YE14 PT of $25 given the partnership’s strategic growth relationship with its GP, MRD, and low-cost operations.
We also initiate coverage on BBEP with an Overweight rating and YE14 PT of $23 given what we see as its outpaced distribution growth potential relative to its E&P MLP peers. We highlight MEMP for value-oriented MLP investors and BBEP for growth-oriented MLP investors.
Still constructive on the upstream MLP space. In our view, the discount on a yield basis relative to other MLP sectors compensates investors for commodity- price exposed cash flows. Supply-demand fundamentals also support our stance, in line with the positive supply outlook from the JPM Global Commodities team, which forecasts US crude supply to grow to 8.5 MMBbls/d (+12%) and dry natgas production to rise to 67.6 Bcf/d (+1.3%) in 2014. Although the commodities team expects crude price volatility to remain high, MLP E&Ps hedge a significant portion of production. We see M&A fueling growth next year with E&P C-Corps running a reinvestment rate median of ~117% based on estimates from JPM E&P analyst Joseph Allman. While our overall view remains constructive, we favor E&P MLPs that we consider better positioned to benefit from the current outlook and highlight MEMP, BBEP, and VNR as top picks in the E&P MLP space.
Memorial Production Partners LP (MEMP): Low-cost operations, strategic partner to drive growth. We expect MEMP to continue growing via M&A and drop-downs that leverage the scale and size of its GP, Memorial Resource Development (MRD). MRD enables MEMP to joint-bid on assets that may otherwise not be accessible due to MEMP’s size. Given the partnership’s smaller size vs. peers, smaller transactions can be meaningful drivers of growth, compared to larger-cap names that may require transformational or larger transactions to grow. In our view, MEMP’s growth potential overshadows relatively greater undeveloped reserves and warrants a premium valuation to peers. As MEMP’s tenure as a public partnership increases, we see the high yield compressing.
BreitBurn Energy Partners LP (BBEP): Top-tier distribution growth among peers; M&A key driver. We forecast a distribution CAGR of more than 5% over the next two years, one of the highest among E&P MLPs under our coverage. We expect BBEP to continue its successful M&A growth strategy due to a lower cost of capital (no IDRs) and diversified production portfolio that provides scale and scope. Despite the partnership’s strong track record and growth potential, BBEP trades near avg. valuation levels; we believe the units merit a premium and see room for upside.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group