We Like MPLX’S East Coast Plans, but Units Pricey
The end game for the narrow-moat limited partnership is building out full control over a massive NGL market hub in the northeastern United States.
We're initiating coverage of MPLX (MPLX) with a fair value estimate of $31 per unit and a narrow moat rating. Our fair value estimate implies a 2018 enterprise value/EBITDA multiple of 12.5 times and a distribution yield of 7.9%, similar to refinery master limited partnership peers. We consider the current unit price to be slightly overvalued.
We believe MPLX has a narrow economic moat based on an efficient scale moat source. With the contributions from the latest $8.1 billion drop-down scheduled to be completed in February, the earnings contribution from moaty pipelines, storage, fractionation, and fuel distribution among others will be about 60%-70% of the business, by our estimates, with the remainder being no-moat gathering and processing assets. The moat for these assets is based on their location, either directly part of a Marathon refinery or close by, and usually the asset is the only one of its type serving the refinery and handles all of its needs, making it uneconomic for competitors to enter the space.
The end game for MPLX is building out full control over a massive NGL market hub in the Northeastern United States, similar to Mont Belvieu in importance, including eventual control over NGL exporting capabilities from the East Coast. MPLX has nearly all of the assets in place to do this, with the exception of direct ethane and propane (or LPG) exporting facilities. Much of the partnership’s efforts over the past few years have focused on de-bottlenecking NGL volumes out of the Marcellus and Utica, and providing Midwestern and western Canadian producers with access to cheaper natural gasoline and condensate. We like the plan. The Mariner East project (led by Sunoco) plans to connect MPLX’s Houston (Pennsylvania) and Hopedale (Ohio) complexes to transport propane and butane (345,000 barrels a day) to Marcus Hook in Pennsylvania, where it can be delivered to domestic and international markets, and is scheduled to be complete in 2018.
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Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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