Tank Farms Fuel TransMontaigne

In this week’s Energy Letter, I discussed a stock screen used last week to identify companies that might have otherwise been filtered out by my more typical search parameters. I use a proprietary screening tool that extracts data from the S&P Global Market Intelligence database. These screens are one level of due diligence, which is then followed by a deeper evaluation of the most highly ranked screen prospects.

For more details on this most recent screen, please refer to this week’s Energy Letter. As I indicated there, most of the stocks identified by this screen would likely fail my further due diligence, but the one at the top is worth a deeper dive. That’s what I want to do here today.

If the name TransMontaigne Partners (NYSE: TLP) sounds familiar, it may be because this Denver-based master limited partnership was highlighted here in February in A Fast Start With More Promise as the top-performing MLP to that point in 2016. At that time TLP was up 22.7% year-to-date (YTD), and it has continued to rise. It is now up 43.7% YTD, and 19.7% over the trailing 12 months (TTM). In fact, TLP is one of only nine MLPs with a positive TTM return.

So let’s take a closer look at TLP’s business.

TransMontaigne Partners provides integrated terminaling, storage, transportation, and related services to customers engaged in the trading, distribution, and marketing of light and heavy refined petroleum products, crude oil, chemicals, fertilizers, and other liquid products. It does not purchase or market any of the products it transports.

TLP’s facilities include:

  • A 7.1 million barrel terminal on the Houston Ship Channel
  • Eight refined product terminals in Florida with 6.9 million barrels of storage capacity
  • A 67-mile interstate refined products pipeline between Missouri and Arkansas
  • Two refined product terminals in Missouri and Arkansas with a storage capacity of 421,000 barrels
  • A crude oil terminal in Cushing with a storage capacity of 1 million barrels
  • A refined product terminal located in Oklahoma City with storage capacity of 0.2 million barrels
  • A refined product terminal located in Brownsville with storage capacity of 0.9 million barrels
  • A 16-mile LPG pipeline from its Brownsville facility to the Mexico border
  • A light petroleum products terminal located in Brownsville with storage capacity of 1.5 million barrels
  • 12 refined product terminals located along the Mississippi and Ohio rivers with 2.7 million barrels of aggregate storage capacity
  • 22 refined product terminals located along the Colonial and Plantation pipelines with aggregate storage capacity of 10 million barrels

Because its primary business is moving and storing refined products, TLP hasn’t suffered like most of the midstream MLPs that handle crude oil or natural gas. TLP has managed to maintain positive free cash flow (FCF) throughout the meltdown in oil and gas prices and in fact reported year-over-year growth in 2015 across most important financial metrics. For 2015, TLP reported:

  • Annual net earnings of $41.7 million compared with $32.5 million in 2014
  • Distributable cash flow (DCF) of $70.7 million compared with $65.7 million in 2014
  • A distribution of $2.665 per unit (flat year over year), with annual distribution coverage ratio of 1.39x
  • Consolidated EBITDA of $89.6 million versus $74.8 million in 2014
  • Operating income of $49.9 million versus $38.9 million in 2014.

Increased revenue at the Brownsville and river terminals drove last year’s gains, more than offsetting declines elsewhere. Direct operating costs and expenses were $2.2 million lower than in 2014.

TransMontaigne Partners has an enterprise value of $914 million, and $273 million in liabilities. The partnership ended the year with a debt/EBITDA ratio of 3.6, better than the 4.7 average for its midstream MLP peer group.

TLP is controlled by its general partner, TransMontaigne GP, which was sold on Feb. 1 by an affiliate of NGL Energy Partners (NYSE: NGL) to a private equity fund.

TLP hasn’t issued guidance for 2016, but analysts estimate EBITDA will rise 3% on average, while DCF is expected to be little changed from 2015.  

Based on the most recent quarterly distribution, TLP yields 7.1% on an annualized basis. The median price target for this year for the three analysts covering the company is $40/unit, which is only about 6% above the current price after the sharp rally year-to-date.   

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)



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