Does the KMI & El Paso Deal Make Williams & MLPs Cheap? (KMI, EP, WMB, PAA, MMP, BPL, AMJ, KYN, WPZ)
The energy complex in America was given a huge boost on Monday on the news that Kinder Morgan Inc. (NYSE: KMI) was doing a record transaction to acquire El Paso Corporation (NYSE: EP). What this does is only highlights the value in the existing pipeline infrastructure. We generally like to let the dust settle before passing judgment on deals and on peers or competitors, but we wanted to see how other similar assets are valued for comparison.
It also highlights outfits like Williams Companies, Inc. (NYSE: WMB) and other hard asset outfits which many may consider to be under the universe of partnerships or MLPs. Some of the entities which investors may focus on in MLPs ar Plains All American Pipeline, L.P. (NYSE: PAA), Magellan Midstream Partners LP (NYSE: MMP), and Buckeye Partners LP (NYSE: BPL).
Plains All American Pipeline, L.P. (NYSE: PAA) is worth some $9.2 billion now and at $61.75 it has a 52-week range of $54.90 to $65.96. Plains All American is in many aspects of transporting and storage, but one stat at the end of 2010 was that it had some 16,000 miles of active crude oil and refined products pipelines, as well as a fleet of trucks, trailers, and tugs various aspects of oil and natural gas.
Magellan Midstream Partners LP (NYSE: MMP) is worth some $7 billion and at $62.37 its 52-week range is $51.00 to $63.14. Magellan has more than this, but as of the first quarter it operated roughly 9,600 miles of petroleum products pipeline system, 51 terminals, 6 marine petroleum terminals, 1 crude oil storage, 27 petroleum products inland terminals, and a 1,100-mile ammonia pipeline system and 6 associated terminals.
Buckeye Partners LP (NYSE: BPL) is now worth almost $6.1 billion and at $65.45 its 52-week range is $54.51 to $71.67. Buckeye owns and operates approximately 5,400 miles of pipeline systems and has more than 60 liquid petroleum products terminals on last look. Another segment operates approximately 2,700 miles of third-party pipeline and terminals.
The merger also highlights the ETF (actually an ETN) of JPMorgan Alerian MLP Index ETN (NYSE: AMJ) and the closed-end fund of Kayne Anderson MLP Investment Company (NYSE: KYN).
So, as far as this concerns Williams Companies, Inc. (NYSE: WMB), the company is worth $16.5 billion. At $28.05, its 52-week range is $20.20 to $33.47. Williams has an exploration and production outfit like El Paso and it also has midstream assets and gas pipelines, although the company’s site notes that its MLP of by Williams Partners L.P. (NYSE: WPZ) owns and operates most of the company’s interstate gas pipeline assets. Williams owns approximately 75 percent of Williams Partners, including the controlling general partner interest. Its pipelines deliver approximately 14% of the natural gas consumed in the United States.
Williams Companies has earnings estimates of $1.51 EPS for 2011 and $1.78 EPS for 2012, so its $28.05 share price generates a blended forward earnings multiple of about 17-times earnings. The company has a 2.9% dividend yield and it trades at more than 2-times book value. As far as how that compares to El Paso Corporation, El Paso’s blended estimates at the current price generates a forward multiple of close to 21-times earnings and more than 4-times its stated book value.
Not all pipeline assets will be acquired. The value is just too high on a nominal basis for every deal that makes sense on the surface to make sense in raw dollars. Some players also have provisions which might make a change of control less attractive for a buyer and these are just some of the other companies to consider in the sector.
JON C. OGG