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.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.