能源业中游产业估值问答

1、Global Research3 January 2020EquitiesMidstreamEnergyAmericasMidstream Valuation Questions and AnswersAddressing Questions Likely at the Top of Investors MindsThe Midstream sector has struggled to outperform since 14, while 19 was an up year it was off of a low base. Notably, since 17 fundamentals ha

2、ve been improving against a backdrop of a broader market quest for yield, raising the biggest question of why has the sector struggled to outperform. A large part was due to the need for structural reforms including Balance Sheet, Capex Funding, and Governance. As we enter 20, the reforms are largel

3、y complete; however, drilling activity is lower and volume growth is expected to soften. We see FCF and those returning capital winning out the day. Initially, investors will focus on who is already there and give those making headway a chance as the year progresses. Regaining investor confidence is

4、 what wins out the day. In this note we address 14 valuation/investor confidence related questions including can midstream work if E&Ps dont and concluding with What is the right multiple.2020: Capex -15%, EBITDA grows results in FCF, Buybacks, and LeverageThe first step to regaining investor confid

5、ence is not overbuilding and generating FCF. While 19 was a capex twilight we see 20 as a capex chasm with capex down 10-15% and down another 10-15% in 21 (we address not all growth capex is bad). EBITDA is expected to rise 7% in 20 (growth from 19/20 capex) and as a result we see an almost tripling

6、 of FCF to $17B in 20E. Overall leverage expected to fall to 4.6x from 4.7x or 4.32x ex LNG/CQP. We see $0.3B of outright debt paydown and room for$2.3B of buyback potential, growing in 21.What Else Can They Do? REITs? Corporate Structure? M&A?We see corp structure discussions continuing (inc. REITs

7、); our recent REIT expert call resonated with retail investors (1099 vs K1); a c-corp conversion is increasingly likely. With systems built out, opportunity is ripe for MOE M&A and integration transactions.Will Confidence Return? Likely. What about Yield? If Confidence RegainedA return of confidence

8、 is ultimately a mgmt decision. Investors will reward those where they feel mgmnt teams are in their corner. If a Co. is at target leverage and generating FCF, investors want buyback messaging. If a Co. is above leverage targets, investors want to see accelerated leverage reduction actions. In other

9、 words, Cos both above/below leverage targets can work, it comes down to the path chosen by mgmnt. Anyone bucking the trend is likely to tread water despite metrics. Finally with respect to yield, investors had previously not believed the yield; however, with a 4.7% FCF yield it will be increasingly

10、 difficult to ignore.Stick with Unicorns for 1H and Rotate into Emerging Unicorns for 2HWe expect investors will stick with Unicorns that are there and will reward those making progress as year unfolds. Top Picks: CEQP, EPD, ET, KMI, MPLX and TRGP.Figure 1: US Midstream FCF (000s)Shneur Z. Gershuni,

11、 CFAAnalyst HYPERLINK mailto:shneur.gershuni shneur.gershuni+1-212-713 3974Aga Zmigrodzka, CFAAnalyst HYPERLINK mailto:agnieszka.zmigrodzka agnieszka.zmigrodzka+1-212-713 3014Michelle Kenel, CFA Associate Analyst HYPERLINK mailto:michelle.kenel michelle.kenel+1-212-713 4896Brian Reynolds Associate A

12、nalyst HYPERLINK mailto:brian.reynolds brian.reynolds+1-212-713 2563Webb Higinbotham Associate Analyst HYPERLINK mailto:webb.higinbotham webb.higinbotha HYPERLINK mailto:m m+1-212-713 2928$30,000$20,000$10,000$0-$10,000-$20,000201420152016201720182019e2020e2021eSource: UBSe, Company Release HYPERLIN

13、K /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 40. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may ha

14、ve a conflict of interest that could affect the objectivity of this report. Investors should consider this1) Will Capex Go Down in 2020? YesYes, we called for a capex twilight in 2019, evolving into a capex chasm in 2020. We expect 2020 capex to decline by roughly 10%-15% and we see the potential fo

15、r another 10-15% decline in 2021, even after accounting for unallocated capex. Most basins in the US should be adequately piped once projects come online in 2020/2021. We do not expect many long lead time, big new projects in 2020/2021, rather, we expect LPs and companies to focus on brownfield type

16、 expansions and shorter lead time type projects. Areas where we expect capex are1) storage around export terminals, 2) Permian processing plants in 2020/2021 and3) Another long haul Permian natural gas pipeline (2023+).Figure 2: UBS US Growth Capex Estimates$40,00015% and 21 to be another 10%-15%eve

17、n with unannounced project spend, we expect 20 capex to be down 10-$35,000$30,000$25,000$20,000$15,000$10,000$5,000$020182019e2020e20 unannounced project spend20e w/ unannounced projects2021e21 unannounced project spend21e w/ unannounced projectsSource: UBSe, Company ReleaseDeclining Capex, coupled

18、with new projects coming online and flat to rising EBITDA, should result in FCF expansion for the Midstream space, the next question is what will management teams will do with excess cash flow.What is notable and signals improved capex discipline by management teams is that capex peaked in 2018 ahea

19、d of the peak in the rig count. This is unlike the last cycle when capex for midstream peaked a year after the rig count peaked. Capex peaking ahead of the rig count peak this cycle provides management teams with significantly more optionality versus the last cycle when many management teams hands w

20、ere tied when the cycle turned. Please see Figure 3 below outlining capex vs changes in US Rig count.Figure 3: Capex Chasm Why this Rig Cycle is Different201420152016201720182019e2020e2021eTotal US Capex$33,050$35,834$29,499$29,076$35,481$35,198$29,865$26,308YOY Change (%)8%-18%-1%22%-1%-15%-12%G&P

21、Capex$5,352$4,380$3,241$3,974$7,114$7,267$5,360$4,025YOY Change (%)-18%-26%23%79%2%-26%-25%Total US Rig Count (Avg)1,8629785098761,032943YOY Change (%)-47%-48%72%18%-9%Source: Factset, UBSe, Baker HughesIs All Capex Bad?No. We are not of the opinion that all capex is bad, however we believe the crit

22、eria for moving forward with a project needs to change and that it is currently underway. For example, we believe brownfield, debottlenecking projects that are done at 3-4x multiples are more likely to proceed vs long lead time greenfield projects which are done at 6-8x multiples. Further, we do not

23、 think that there would be a positive reaction to capex announcements for new pipelines in basins where utilization is less than 80%. That said should utilization increase above 85%, we believe those type of debottlenecking project should be actively pursued. Further, we also think capex spend which

24、 integrates a company downstream is a positive. From an evidence point of view we have seen proposed Permian crude pipelines get cancelled or merged into JVs. Further, KMI recently backtracked on another Permian NatGas project. Management teams are closely assessing market dynamics with an eye towar

25、ds the terminal value of a project not just the upfront return of capital.Will Midstream Management Engender Confidence in 2020?We believe 2020 stock performance will be largely driven by investors view of if management teams are in their corner. Said differently, investors will be looking for an al

26、ignment of management and investor interests. We see the Midstream space broadly falling into two buckets 1) the entity has reached its leverage target and has excess cash flow and 2) the company is above its leverage target. How management teams deploy capital in those two scenarios will likely dri

27、ve stock performance.Leverage at TargetUse Excess Cash flow (CFO-Maintenance-50% growth - dividend/distributions) to buyback stockUse FCF after dividends to paydown debt; if negative, consider asset sales to accelerate leverage reductionIn bucket 1, we see those who direct excess cash flow towards u

28、nit/share buybacks vs large scale capital projects as stock market winners. In bucket 2, we believe those with excess cash flow who direct it towards aggressive leverage reduction combined with asset sales will also outperform. Interestingly, we posit further leverage reduction may not yield the sam

29、e valuation benefit in terms of equity risk premium contraction as it did when leverage metrics were above desired metrics.Source: UBSFor 2020 we estimate that our US coverage base will have the ability to paydown$300MM of debt while also being in a position to buyback $2.3B of units/shares. We see

30、this accelerating in 2021 to $1.1B of debt paydown and$3.9B of buyback ability. The AMUS (midstream index with both c-corps andMLPs) rose 8% in 2019 and the AMZ fell 2% with $3B of outflows, $2.3B of buybacks could have a material impact on stock/unit price performance in 2020.Figure 4: 2020e US Mid

31、stream FCFFigure 5: 2021e US Midstream FCF$30,000$30,000$25,000$25,000$20,000$20,000Debt PaydownBuybacks2020e FCF$15,000$10,000$5,000$0$15,000$10,000$5,000$0Debt PaydownBuybacks2021e FCFSource: UBSeSource: UBSeFigure 6: US Midstream Leverage6.50 x6.00 x5.50 x5.00 x4.50 x4.00 x3.50 xx2015201620172018

32、201920202021Source: UBSe, Company Release Note: Includes LNG & CQPBuybacks vs. Debt Paydown?In order to determine if a companys excess cash flow should be directed towards additional debt paydown or buybacks we first looked to see if the company was at or below its leverage target (4.5x large cap, 4

33、.0 x mid/small cap or adjusted for company commentary).Figure 7: UBSe Leverage, 2020-21ELeverage Target 2020 Leverage 2021 LeverageBPMP4.00 x2.58x2.99xCEQP4.00 x4.19x4.00 xCQP4.00 x6.11x6.64xDCP4.00 x4.97x4.59xENBL4.00 x4.03x4.26xENLC4.00 x4.36x4.09xEPD4.50 x3.41x3.28xEQM4.00 x5.46x4.48xET4.25x4.55x

34、4.51xETRN4.00 x6.13x5.20 xGEL4.00 x5.51x5.39xHEP4.00 x4.23x4.20 xKMI4.50 x4.32x4.36xLNG5.00 x6.90 x5.68xMMP4.00 x3.20 x3.13xMPLX4.50 x3.79x3.74xNGL4.00 x6.13x5.29xNS4.00 x5.85x5.63xOKE4.50 x4.44x4.20 xPAA4.00 x4.40 x3.99xPBFX4.00 x3.59x3.65xRTLR2.00 x1.65x1.44xSHLX4.00 x3.73x4.03xSPH4.00 x4.38x4.33x

35、SUN4.00 x4.59x4.58xTCP4.00 x4.25x4.61xTRGP4.00 x4.99x4.25xUSAC4.00 x5.17x5.09xWES4.00 x4.86x4.48xWLKP4.00 x3.16x2.66xWMB4.20 x4.44x4.41xSource: UBSeIf the company is not at its leverage target we believe that any FCF after dividends should be used to paydown debt. We note if there is negative FCF af

36、ter dividends in both 2020/2021 and the company remains above leverage targets, that company would likely benefit from asset sales, to help accelerate the de-leveraging process.The table below illustrates FCF after dividends. For names above their leverage target, excess cash flow will go to debt pa

37、ydown. We estimate roughly $300MM of debt paydown in 2020, accelerating to $1.1B in 2021 as FCF after dividends accelerates due to our expected decline in 2021 capex.Figure 8: 2020e/2021e Debt Paydown AnalysisCFOMaintenanceGrowthDividendsLeverageLeverage Above TargetFCF After DividendDebt Paydown202

38、1e Debt PaydownET$7,747($650)($4,193)($3,275)4.55xyes(371)$0$0KMI$5,899($722)($2,047)($2,833)4.32xno298$0$0PAA$2,164($245)($1,350)($1,100)4.40 xyes(530)$0$0EPD$7,028($350)($3,625)($4,024)3.41xno(971)$0$0TRGP$1,644($147)($1,250)($846)4.99xyes(600)$0$0DCP$915($97)($600)($650)4.97xyes(432)$0$0WES$1,258

39、($134)($800)($1,145)4.86xyes(820)$0$0ENBL$892($120)($200)($573)4.03xyes(1)$0$0CEQP$459($27)($125)($180)4.19xyes127$120$0MPLX$4,253($263)($2,000)($2,989)3.79xno(999)$0$0EQM$1,036($55)($1,335)($942)5.46xyes(1,296)$0$0HEP$285($10)($54)($279)4.23xyes(57)$0$0NS$529($45)($325)($259)5.85xyes(100)$0$0GEL$49

40、2($70)($100)($273)5.51xyes49$49$0MMP$1,382($95)($500)($974)3.20 xno(188)$0$0SHLX$715($33)($1,072)($717)3.73xno(1,107)$0$0PBFX$165($10)($25)($135)3.59xno(4)$0$0BPMP$212($2)($405)($177)2.58xno(372)$0$0NGL$359($55)($300)($196)6.13xyes(191)$0$105SUN$460($44)($130)($344)4.59xyes(57)$0$22USAC$276($28)($74

41、)($202)5.17xyes(29)$0$0WLKP$197($34)($243)($76)3.16xno(156)$0$0TCP$349($68)($160)($187)4.25xyes(66)$0$0LNG$2,245$0($2,400)$06.90 xyes(155)$0$834CQP$1,843$0($1,250)($1,368)6.11xyes(774)$0$0RTLR$334($10)($195)($174)1.65xno(45)$0$0ETRN$995($55)($1,335)($459)6.13xyes(853)$0$0ENLC$776($54)($300)($277)4.3

42、6xyes145$145$97WMB$3,533($549)($1,200)($1,938)4.44xyes(154)$0$0OKE$2,531($194)($2,400)($1,604)4.44xno(1,667)$0$0SPH$193($16)($20)($149)4.38xyes8$8$4Source: UBSeIf the company has achieved their leverage target, then we believe excess cash flow should be directed towards buying back units/shares. In

43、order to determine the amount of units/shares that can be bought back, we used a buyback ability formula which we define as CFO less Maintenance Capex less 50% of growth capex less dividends. Excess cash flow can fund buybacks, as long as leverage post the debt creep from funding 50% of growth capex

44、 via debt remains at or below the leverage target.Based on our 2020 estimates we believe roughly $2.3B of buybacks can be completed. As more companies hit their leverage targets in 2021 and capex continues to decline, we would expect an acceleration in buybacks. In 2021 we estimate roughly $3.9B of

45、stock could be bought back.Figure 9: 2020e/2021e Buyback AbilityLeverage2020e CFO Maintenance 50% GrowthDividends Buyback AbilityLeverage Above TargetBuyback2021e BuybacksET$7,747($650)($2,096)($3,275)4.55xyes$0$0KMI$5,899($722)($1,024)($2,833)$1,3224.32xno$1,322$1,217PAA$2,164($245)($675)($1,100)4.

46、40 xyes$0$158EPD$7,028($350)($1,813)($4,024)$8413.41xno$841$1,337TRGP$1,644($147)($625)($846)4.99xyes$0$0DCP$915($97)($300)($650)4.97xyes$0$0WES$1,258($134)($400)($1,145)4.86xyes$0$0ENBL$892($120)($100)($573)4.03xyes$0$0CEQP$459($27)($63)($180)4.19xyes$7$128MPLX$4,253($263)($1,000)($2,989)$13.79xno$

47、1$320EQM$1,036($55)($668)($942)5.46xyes$0$0HEP$285($10)($27)($279)4.23xyes$0$0NS$529($45)($163)($259)5.85xyes$0$0GEL$492($70)($50)($273)5.51xyes$0$0MMP$1,382($95)($250)($974)$623.20 xno$62$180SHLX$715($33)($536)($717)-$5713.73xno$0$0PBFX$165($10)($13)($135)$83.59xno$8$3BPMP$212($2)($203)($177)-$1692

48、.58xno$0$0NGL$359($55)($150)($196)6.13xyes$0$0SUN$460($44)($65)($344)4.59xyes$0$0USAC$276($28)($37)($202)5.17xyes$0$0WLKP$197($34)($122)($76)-$343.16xno$0$0TCP$349($68)($80)($187)4.25xyes$0$0LNG$2,245$0($1,200)$06.90 xyes$0$0CQP$1,843$0($625)($1,368)6.11xyes$0$0RTLR$334($10)($98)($174)$521.65xno$52$

49、65ETRN$995($55)($668)($459)6.13xyes$0$0ENLC$776($54)($150)($277)4.36xyes$0$192WMB$3,533($549)($600)($1,938)4.44xyes$0$0OKE$2,531($194)($1,200)($1,604)-$4674.44xno$0$261SPH$193($16)($10)($149)4.38xyes$0$0Source: UBSeWhich Stocks Would Benefit from Asset Sales?We saw a number of asset sales in 2018/20

50、19 as 1) Midstream companies looked to sell non-core assets to help de-lever and 2) Due to the high valuations that were being placed on assets. In 2020 we believe some Midstream equities can disproportionally benefit from asset sales, to help accelerate the deleveraging process to their targeted le

51、verage. We view those that have negative FCF after dividends combined with leverage above stated targets as most likely to benefit most from asset sales from a stock performance perspective.That said, should companies that have achieved their leverage targets sell assets we would like to see proceed

52、s being used for stock buybacks. This could result in a corresponding lift in valuation if management messages proceeds will most likely fund buybacks.Figure 10: Who Could Benefit from Asset SalesLeverage Above Target in 2020Leverage Above Target in 20212020e FCF after Dividends 2021e FCF after Divi

53、dends BPMPnono($372)$0CEQPyesyes$127$128CQPyesyes($774)($755)DCPyesyes($432)($9)ENBLyesyes($1)($251)ENLCyesyes$145$289EPDnono($971)$0EQMyesyes($1,296)($462)ETyesyes($371)($384)ETRNyesyes($853)($116)GELyesyes$49($36)HEPyesyes($57)($31)KMInono$298$0LNGyesyes($155)$834MMPnono($188)$0MPLXnono($999)$0NGL

54、yesyes($191)$105NSyesyes($100)($26)OKEnono($1,667)$0PAAyesno($530)$0PBFXnono($4)$0RTLRnono($45)$0SHLXnoyes($1,107)($1,064)SPHyesyes$8$4SUNyesyes($57)$22TCPyesyes($66)($94)TRGPyesyes($600)($20)USACyesyes($29)($18)WESyesyes($820)($588)WLKPnono($156)$0WMByesyes($154)($670)Source: UBSeNote: We did not h

55、ighlight names which we do not believe would/could sell assetsWill Investor Confidence in the Midstream Dividend/Distribution Increase in 2020?We believe investor confidence in current distributions and dividends will increase in 2020. There are a plethora of yields in excess of 8% and even 10% illu

56、strating investor concerns and fears around the dividend/distribution levels and lack of confidence in the ability to maintain these levels. The concerns are partially driven by the cuts the sector has seen over the past four years. That said, we believe FCF paired with leverage improvements and buy

57、backs will help alleviate these concerns. First, we expect FCF to roughly triple to $17B in 2020 from $5.8B in 2019. We also see FCF accelerating further in 2021 to $26B. This is driven by a7% increase in EBITDA for the sector in 2020 combined with our expectation of a15% decline in Capex, with a si

58、milar trend in 2021.Figure 11: US Midstream FCF$30,000$25,000$20,000$15,000$10,000$5,000$0-$5,000-$10,000-$15,000-$20,000201420152016201720182019e2020e2021eSource: Factset, UBSeWith roughly $360B of market cap across our coverage, this translates into a4.7% FCF yield in 2020 up from 1.6% in 2019, he

59、nce we expect investors to have increasing confidence in dividends/distributions across our sector.Notably, in looking at individual companies, we find those with 6% FCF yields and 8% dividend yields as interesting dividend plays. See Figure 12 below.2020e FCF Yield Dividend YieldFigure 12: 2020e FC

60、F Yield vs. Dividend YieldEPD5.0%6.2%ET8.2%9.1%MPLX7.3%10.2%PAA4.2%7.7%CEQP13.6%7.7%DCP4.1%12.4%ENBL13.1%13.1%ENLC13.8%18.0%EQM-6.0%15.5%WES3.5%12.1%BPMP-23.3%8.0%GEL12.5%10.4%HEP9.1%11.9%MMP5.5%6.4%NS5.5%9.0%PBFX10.3%10.2%SHLX-8.2%8.3%CQP4.4%6.1%NGL0.3%13.6%SPH11.6%11.1%SUN11.2%10.7%TCP4.2%6.3%USAC