Enterprise Products Partners L.P. Recommendation HOLD

Krause Fund Research
Spring 2016
Enterprise Products Partners L.P. (NYSE: EPD)
Recommendation: HOLD
ENERGY
April 12, 2016
Analysts
Katherine Boyle
[email protected]
Ryan Dowd
[email protected]
Jack Abrahamson
[email protected]
Elliott Smith
[email protected]
Company Overview
Enterprise Products Partners L.P. (EPD) is an
industry leading Master Limited Partnership (MLP)
in the transportation and storage subsector for
energy companies. EPD has current infrastructure to
transport and store crude oil, natural gas liquids
(NGLs), and petrochemicals throughout the United
States, Mexico, and Canada and is always expanding its
vast
network
of
pipelines.
Its
integrated
midstream
network
of transportation pipelines,
processing plants, terminals, and storage facilities
allows for ease in linking oil and natural gas
producers with the largest supply basins and
downstream refineries in North America. For the fiscal year
ended December 31, 2015, EPD reported revenue of
$27.03B and net income of $2.52B.
Stock Performance Highlights
52 week High
52 week Low
Beta Value
Average Daily Volume
Share Highlights
Market Capitalization
Shares Outstanding
Book Value per share
EPS (as of FYE ended 12/21/15)
P/E Ratio
Distribution Yield
Distribution Payout Ratio
Company Performance Highlights
ROA
ROE
ROIC
$34.30
$19.79
0.845
3.97M
Current Price: $25.01
Target Price Range: $27.00 - $30.00
EPD Maintains Strong Distributions and Capital
Investment Despite Low Commodity Prices
• EPD exhibited record years both in terms of gross operating
margin and distributable cash flow of $5.3B and $4.0B,
respectively, providing 1.3 times the coverage of required cash
distributions in 2015.
• Cash Distributions have increased in 47 consecutive
quarters with a compound annual growth rate of 7% leading the
way among its peers as a value stock MLP.
• The recent acquisition of Eagle Ford Shale Midstream
added over 470 miles of natural gas liquids transportation and
increased condensate process capabilities achieving synergies
through deeper integration into the NGL rich areas of Eagle
Ford Shale.
• EPD has $6.8B worth of capital projects to be completed by
2018 to increase their natural gas and NGL exporting abilities
leading to greater potential revenue growth and expanded
market reach.
$48.47B
2.013B
$10.08
$1.25
18.40
6.40%
99.37%
5.15%
12.30%
9.33%
1 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
We predict this low growth to be short-term and should begin
picking up in 2017 when stronger oil prices are realized and net
exports increase as the U.S. dollar starts losing value. Real GDP
can expect to see about a 2.7% increase and an average of
3.25% growth for the years 2018-2021.
ECONOMIC OUTLOOK
Real Gross Domestic Product
Real gross domestic product (GDP) is a general measure of the
economic climate. By adjusting for inflation, it properly reflects
the monetary value of all the goods and services that a country
produces.
Real GDP growth has a strong correlation with the demand for
oil. In order to produce more goods and services, more energy
resources are required to power the machines that
manufacture the goods and services, and fuel transportation.
The graph below illustrates this correlation between oil demand
and GDP growth.
Europe
Europe had a real GDP growth of 1.8% in 2015 but has had a
rough start to 2016 due to a sharp drop in banking stocks that
stimulated recession fears. However, the majority of these
stock drops were based on bad loans to energy companies
facing 15 year lows in oil prices. The lack of consumer spending
has also hurt European growth outlook. The European Central
Bank (ECB) is attempting to solve this issue by setting negative
interest rates on bonds to encourage lending and negative
deposit rates on consumer deposit accounts to encourage
spending. At the end of March, the yield on 10-year bonds in
the Eurozone hit negative rates. Currently about 40% of
European government bonds are negative as seen in the graph
below.
Source: EIAxx
We predict that real GDP will increase gradually in 2017 to
approximately 2.5%, and will continue to rise in the following
years until peaking at around 3.5-3.75%. Similarly, we predict
oil prices will eventually recover to around $60 a barrel by the
end of 2017. We expect that strong recoveries will happen in
Europe and that emerging markets will help drive up the
demand for oil as more goods and services are being produced.
Domestic Growth Outlook
Real GDP growth for the U.S. in 2015 was 2%, a decline from
2.47% in 2014.xxvii This decrease is due to a yearlong
appreciation of the U.S. dollar which has widened the trade gap
by reducing external demand for U.S. goods. Real GDP growth is
expected to sit around 2% in 2016, a decrease from earlier
forecasts by the Fed which forecasted it at 2.8%. The
unemployment rate decline has stalled at around 5.0%. This
decline, paired with an expected increase in the federal funds
rate will further slow U.S. GDP growth for the remainder of
2016. Despite this bleak economic data for the U.S., it is faring
well compared to many other industrialized nations.
Source: FRAviii
We believe that Europe will have a decrease in real GDP growth
in 2016 of approximately 1.6% but will bounce back to 2%
growth in 2017 as consumer spending increases again and a
larger labor force welcomes more millennials and migrants. We
forecast that Europe should have real GDP growth of around
2.5-3% for the years 2018-2021.
China
In 2015, China had its lowest GDP growth in decades at around
6.7% and expects it to slump to as low as 6% in 2016.iv This has
been driven by deflationary trends suggesting that Chinese
consumers and businesses are not spending as much as they
used to. They also exported less in 2015 than 2014 indicating
that exports may have reached their peak at around 2.3 trillion
(USD) and will likely have more modest growth in the future.iii
This slowdown has contributed to a lower demand for oil.
April 12, 2016
2 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
We believe that the years of 12-14% real GDP growth are over,
and that rates will fluctuate more modestly between 6-7.5% in
the future. However, by modern country standards, these
expected growth rates are still large in stature. We believe that
China’s economy has begun to stabilize due to peaks in the
working age population and export growth. Additionally, the
technology gap between China and other modern countries has
closed and will now grow at a slower rate than it had in the
2000s.
South America and OPEC
Growth in OPEC and South American countries has been
decimated by the rapid decline in oil and other commodity
prices. In these countries, commodities have substantial
contribution to economic growth. For example, in Saudi Arabia,
oil can contribute between 45-50% of GDP and 80% of
government revenue.xv South America has had increases in
unemployment, inflation and political instability in big
economies such as Venezuela, Argentina, and Brazil. These
relatively large economies were either flat or contracted in
terms of real GDP growth. The country best positioned to
succeed is Iran which is coming off of trade restrictions and
receiving economic incentives which will dramatically increase
trade in the oil rich nation. Iran’s real GDP growth is estimated
to be around 4.2 % in 2016 and could hit 6% by 2020.xx Other
OPEC countries have cut real GDP growth from around 3.3% to
2.9% for 2016 due mostly to a decrease in oil revenue.xiii
We believe that South America’s real GDP growth will narrow
again this year due to a slower rebound of commodity prices,
significant value decreases in currencies, and current political
unrest which inhibits economies from stabilizing. We project
GDP to reduce about 2-3% and then have a slight positive
growth in 2017, eventually reaching 2% by 2020. For middleeastern OPEC countries we predict real GDP growth will be
about 3% this year and should slowly increase as oil prices and
oil demand increases in 2017 when foreign economies begin to
recover. We also expect these countries to invest more in
technology and manufacturing to become less reliant on oil as
the quintessential revenue source in the future.
Interest and Currency Exchange Rates
The usage of widespread quantitative easing and manipulation
of national interest rates in order to promote spending is
devaluing currencies, and is causing interest rates to fluctuate
around the world.
The U.S. dollar has been increasing in value for a couple years as
it has recovered from the 2008-2009 recession quicker than
other countries. In 2011 $1 equaled .65 Euro. Today that gap
has closed to around .9 Euro.vii This strong appreciation has had
a substantial effect on U.S. imports across the world. Multinational businesses particularly those that recognize revenue in
other currencies have suffered from these devaluation effects.
In order to find a solution, the ECB, Bank of Japan (BOJ), and
People’s Bank of China (PBC) initially devalued their currencies
by turning to negative national interest rates. These reductions
are intended to increase inflation, boost consumer spending,
and promote the exportation of their goods and services. These
events should make their exports cheaper than other
industrialized countries.
We expect exchange rates to stabilize in the next year as the
ECB ends quantitative easing and other foreign banks stop
reducing interest rates. Long-term, we expect the dollar to
realize minor devaluations relative to the Euro and the Chinese
Yuan. This expectation will be spurred by GDP growth in
respective countries. However, it will be mostly offset by the
U.S. raising its own rates at a steady pace as the federal funds
rate reaches around .7% by 2017 and 3-3.25% by the end of
2020. This will slow consumer and business spending.
Country
Interest Rate %
United States
0.50%
Euro Area
0.00%
China
4.35%
Japan
-0.10%
Germany
0.00%
United Kingdom
0.50%
France
0.00%
Brazil
14.25%
India
6.50%
Russia
11.00%
Canada
0.50%
Australia
2.00%
Saudi Arabia
Source: Trading Economics
2.00%
xi
Oil Prices
Since September of 2014 oil prices have fallen over 60% from
$105 to $40/barrel which has hurt companies whose earnings
are at all tied to the oil industry. Prices are expected to rebound
over the next 3 years, reaching $60-65/barrel for Crude oil
before leveling off.xi We believe that oil will not go back to
$100/barrel or anywhere near it due to the substantial amount
of oil producers, such as Iran which will start harvesting large
quantities of oil. The low prices have caused solvency concerns
for many small firms who do not have economies of scale, have
no way to raise capital due to extremely low prices of stock, or
have little access to debt markets. The graph below better
demonstrates the intense drop in the price per barrel of crude
oil in the past year and a half.
April 12, 2016
3 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
2015. As shown below, the Baker Hughes rig count, an
important industry metric indicating the extent of drilling
activity, provides insight into current production trends. (BHI rig
count)
Source: Baker Hughes Rig Countxxi
Source: ThomsonOnexix
Oil Inventories
The large decline in oil prices was caused by stunted or negative
economic growth around the world and an increase of
production in North America from the shale oil and fracking
boom. This growth occurred in states such as Texas, North
Dakota and New Mexico who increased production around
2011 when oil was over $100/barrel. Through innovation, the
breakeven price has dropped from $75-$90 to between $40$50/barrel in 2015 depending on location.xx However, the
market is now oversupplied with oil as OCED countries oil
inventories totaled 3.04 billion at the end of 2015 and are
expected to rise to 3.24 billion by the end of 2016. The chart
below shows the oil inventories’ dramatic increase in early 2015
from 57 days of supply to 69 days of supply in April of 2016. As
illustrated by blue trend line, the inventory levels are well
outside the normal range.
We expect the declining rig count to help reduce the oil supply
glut and stimulate upward mobility in oil prices over the next
three years when demand increases in the world’s big
economies as they start to recover from the current economic
slowdown. In the short term, this will hurt the revenue of firms
in the oil service industry which is reflected in our forecasts for
EPD.
INDUSTRY ANALYSIS
Industry Description and Overview
EPD operates in the Oil & Gas Storage & Transportation
industry. The company is known for serving as essentially a “toll
road” for upstream E&P companies. Firms operating in this
industry are known as midstream companies delivering value
through their pipelines and storage facilities. EPD and its
competitive peers in this industry of the Energy sector provide
transport and storage services to oil producers.
Source: EIAxx
The U.S. alone has 530 million barrels in reserve as of April 1,
2016. This is a net increase of 140 million barrels since January
of 2015. The rise has slowed in recent weeks as less rigs remain
active. The large supply of oil has prompted many oil producers
to slow production and extraction of oil due to the sharp
increase of oil supply relative to demand which began in early
Source: EIAxx
April 12, 2016
4 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
As of the beginning of 2015 there was 199,243 miles of pipeline
in the US. There are 66,649 miles of pipeline for crude oil,
61,681 miles for refined products, and 65,595 miles for natural
gas or NGL’s. The map above shows the extensiveness of the
current pipeline systems and they are going to continue to
expand in the coming years. NGLs and natural gas lines have
increased 27.5% in the last 10 years and are expected to grow
the most over the next 5 years as 27,866 miles were planned to
begin construction in 2015. Crude oil and refined products are
expected to grow by 10,626 and 3,247 miles over the next 5
years in comparison. This continued growth of pipeline speaks
to the room for growth in this industry and suggest that there
will be sufficient demand for these oil and gas products.
Recent Development and Trends
Natural gas storage increases
Source: EIAxx
Natural gas storage levels are at near all-time highs due to a
warm winter which affected heating needs and are projected to
continue to be at a high level for the foreseeable future. The
current levels show a stark contrast from mid-2013 to mid-2015
when storage was far lower than usual. We expect demand to
increase in 2017 due to a recovering oil price which will make
natural gas cheaper compared to oil and a stronger demand in
Mexico and Canada resulting from increased electrical power
needs. Additionally, exports are expected to grow in Asia due to
new trade agreements and continued economic growth in these
markets.
Natural gas production decreases
Competition Analysis
Com pany Nam e
Source: EIAxx
Natural Gas production has been on the rise in recent years and
fell late in 2015 due to low oil prices and declining rig counts,
which hurts the demand for natural gas. The production is
anticipated to increase again in 2017 according to the EIA. We
project steady increases as foreign and domestic industrial and
commercial demand increase in the coming years. This is
illustrated by increasing sales for EPD to 29.156 billion in 2016
and 32.071 billion in 2017 as demand and natural gas prices
increase. The U.S. is projected to be a net exporter by 2018,
which will help the major NGL and natural gas firms, such as
EPD, grow their revenues significantly from 2018-2022 as
demand rises.
Mkt. Cap
Sales
ROE
Enterprise Product Partners L.P.
Magellan Midstream Partners L.P.
48.47 B
15.00 B
27.03 B
2.19 B
13.10%
47.11%
18.4
19.8
Spectra Energy Partners L.P.
13.57 B
2.50 B
9.33%
14.3
Energy Transfer Partners L.P.
23.22 B
34.30 B
1.93%
26.1
Williams Companies Inc.
13.16 B
7.36 B
-7.65%
21.8
Energy Transfer Equity L.P.
9.37 B
42.13 B
-
7.4
Kinder Morgan
40.55 B
13.92 B
0.69%
26
Plains All American Pipelines L.P.
8.76 B
22.97 B
3.97%
16.1
-
19.04 B
9.78%
18.74
Mean
P/E 17
Source: Factsetvii
Despite the downturn that affected the energy sector as a
whole, the oil pipeline industry remained profitable. Most
companies performed well in 2015 and had a net income
consistent to prior years. This is largely due to the only major
expense being cost of goods sold which rises and falls with
revenue. Williams Company (WMB) and Energy Transfer Equity
(ETE) performed poorly due to high interest expense from debt
necessary to finance expansion projects. EPD had interest
expense of $927 million which is small relative to EPD’s size.
Smaller firms had interest expense of over $1 billion which has
caused their net incomes to drop.
April 12, 2016
5 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
Capital Expenditures
Source: Factsetvii
Source: Factsetvii
The graph above illustrates the diversity of the product
offerings for different companies. EPD is the most diversified
company with significant exposure to all three pipelines listed
above. NGLs and Natural Gas make up 87.7% and Crude Oil
being the remaining 13.3% of EPD’s pipeline coverage. Others
offer only one or two types of pipeline service which makes
firms in the industry react differently based on energy prices.
Below is the revenue generated per mile of pipeline. Companies
with more miles of pipeline used for natural gas or NGLs had a
larger drop in revenue compared to firms who had bigger
operations with oil pipelines. Magellan Midstream Partners
(MMP) operates exclusively in the oil pipeline space and was
not affected by the drop in natural gas or NGL prices. Though oil
prices dropped, it transported almost double the value of oil.
ETE and Kinder Morgan (KMI) have more miles of pipeline than
EPD. However, EPD earns more revenue per mile of pipeline
than they do. Thus, EPD has more productive assets.
Strong capital expenditures are a good indicator that there is
potential for growth. Every company in the industry has had
consistent capital expenditures with ETP having a strong
increase in 2015. EPD has had about industry average capital
expenditures which will remain consistent in 2016. We
complied management’s guidance for projected capital
expenditures for 2016 and it shows consistency in its capital
expenditures which suggests a strong future for this industry
even though revenues dipped last year. These figures suggest
firms are continuing to build more pipelines and are expanding
their operations.
Comparisons Among MLP firms
MLP Name
Enterprise Product Partners L.P.
Magellan Midstream Partners L.P.
Energy Transfer Partners L.P.
Plains All American Pipelines L.P.
Energy Transfer Equity L.P.
Spectra Energy Partners L.P.
Mean
vii
Distribution
Mkt. Cap EV/EBITDA Cash Flow P/DCF 17 Net Income
48.47 B
16.08
4.03 B
12.00
2.51 B
15.00 B
18.96
.94 B
15.70
0.82 B
23.22 B
12.17
3.37 B
5.10
0.31 B
8.76 B
13.68
1.47 B
7.80
0.31 B
9.37 B
15.64
1.32 B
11.0
1.18 B
13.57 B
13.18
1.21 B
13.00
0.98 B
14.95
2.06 B
10.77
1.02 B
Source: Factset
Source: Factsetvii
The above table compares only MLP’s omitting corporations like
Kinder Morgan (KMI) and Energy Transfer Equity (ETE). We
limited this comparison to MLP’s since EPD possesses that
corporate structure. MLPS compare better to each other
because they use Price-to-Distributive-Cash-Flow (P/DCF)
instead of Price/Earnings (P/E) as an accurate metric for
comparison despite some having smaller operations than
companies such as KMI. This is because P/E ratios can be
misleading when doing relative valuation. MLPs normally have
high depreciation expenses due to the heavy fixed-asset nature
of their industry. The large amounts of depreciation can give a
negative view of company earnings regardless of company
performance, it does not affect cash flows. These MLP’s 2017E
P/E average is 19.5 which can make their stocks look expensive
earnings wise. However, the P/DCF ratio is 10.75 on average
which paints a much more reasonable picture for trading prices.
EV/EBITDA is also important because it includes debt in the
multiple. Due to the heavy capital requirements for building
April 12, 2016
6 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
and maintaining oil pipelines, it is useful to use this multiple
when comparing MLPs.
EPD tends to trade at a premium as it is an industry leader and
has performed well relative to peers during the drop in oil
prices which has affected all three facets (upstream, midstream,
and downstream) of the oil industry. It has also increased its
quarterly dividend 47 straight quarters, including Q1 2016, and
is expected to continue this into the future. According to our
model, we expect the distribution to be $1.58 for 2016 and
grow by around $.07 per year to around $2.00 in 2022.
Porter’s 5-Forces Analysis:
Supplier Power
Suppliers in the pipeline industry cater primarily to companies
in the energy sector, which currently are being hit hard by low
commodity prices. Just as the upstream companies in the
sector are struggling, so are those supplying servicing them. The
suppliers need their product to be purchased in order to make a
profit. Often times in this industry, the suppliers have entered
into long-term contracts with the purchasing companies. These
contracts typically only get negotiated every few years. For
companies like EPD that are primarily pipeline based, the
supplier costs are mostly paid all at once and up front. Overall,
the supplier power in the industry is low due to the inability to
negotiate regularly.
Buyer Power
Demand for oil, gas, and the respective pipeline services is
relatively inelastic, meaning consumers will always need it no
matter what price it is currently trading at. Buyers in general do
not have much power in setting the prices. They are primarily
set by the drilling companies and organizations. However, if
buyers are pessimistic and shareholders divest shares of equity
then the company may have to leverage more of its operations
with debt which could be detrimental for the company in the
long run if it cannot meet payments. That being said, the buyers
power is set currently at a medium level of influence in terms of
equity pricing versus commodity pricing which is primarily set
by larger companies and organizations.
Competitive Rivalry
Competition is usually what leads to volatile markets. Currently
a variety of companies and associations are dumping oil and gas
into the market to drive prices down or are building up reserve
supplies in order to drive prices up. Major sources of oil in the
industry are WTI and Brent. EPD and most other U.S. pipeline
MLP’s deal with WTI.
OPEC and other institutions influence the competition for price
by communicating various announcements and setting drilling
policies. Currently OPEC has decided to continue to drill despite
already low prices. This type of news hurts the energy
commodities market further. The price in this industry is driven
by the competition over market share between companies and
organizations. Additionally, strong competition is the primary
reason for smaller companies going bankrupt and larger
companies struggling.
Threat of Substitution
The oil industry in general does not have many substitutions
other than wind and solar energy. Both of these are more
expensive than energy provided by oil and gas due to low
commodity prices. Infrastructure in many buildings and cities is
also set up to run on oil and gas energy. Creating a whole new
infrastructure to enable cities and buildings to use alternative
forms of energy would require incredibly high costs. As far as
pipelines and transportation of oil and gas more specifically, the
only substitute would be boats and trucks. In order to get
energy to these transportation services, the use of pipelines is
still required. At this point in time, there are virtually no
alternatives or substitutes for pipelines in terms of transporting
energy across the U.S.
Threat of New Entry
The oil and gas industry is one of the toughest industries to
enter right now. Currently, there are few banks are giving out
loans to companies looking to invest in the industry. Many
small companies already involved are having to default on loan
payments and either go bankrupt or get acquired by larger
companies who have the cash flow to withstand these rough
times. Due to such poor conditions the threat of entry for this
industry is extremely low.
COMPANY ANALYSIS
Enterprise Product Partners, L.P. (EPD) is a leading North
American provider of midstream energy services to producers
and consumers of natural gas, natural gas liquids (NGLs), crude
oil, petrochemicals, and refined products. As a leader of
midstream energy services, it has been able to endure the low
energy commodity prices well in comparison to its competitors.
It has managed to increase its distributions by over 5% from
2014 to 2015 reporting 47 consecutive quarters of cash
distribution increases. In 2015, EPD generated 1.85 times the
coverage needed to meet shareholder distribution
requirements set forth by its board of directors. Despite the
economic downturn, EPD is still able to invest large amounts of
money into acquisitions as well as capital expenditures. In 2014,
EPD acquired Oiltanking Partners L.P. The deal has greatly
increased its storage and transportation capacity along the
Texas Gulf Coast. EPD also sold its offshore Gulf of Mexico
pipeline and services business segment to Genesis Oil and Gas
April 12, 2016
7 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
Consultants Ltd. for $1.5 billion in cash. The cash infusion allows
EPD to invest in better suited projects more likely to generate
long-term future cash flows. This year, EPD plans to complete
the final payment installment necessary to acquire EFS
Midstream. Capital spending exceed $6 billion in 2015 and the
company expects that figure to be similar at the end of 2016. In
comparison with its competitors, EPD has the size, geographic
exposure, and diversity of business segments to separate itself
in the industry and provide a positive long-term outlook to unit
holders. EPD has proven that it can remain profitable within a
tough economic environment for energy companies. Its
revenue is dependent on the health of its upstream clients.
When E&P companies see their margins falling due to slumping
commodity prices, transportation and storage firms feel
pressure to decrease rates. EPD has felt this pressure, and while
revenues suffered in 2015 compared to the year before, its
profit margins remained stable. The company is gearing up for
the long run. Between its quarterly increases in cash
distributions and capital expenditures, EPD seems confident
that an oil and gas price turnaround is looming. As energy prices
rebound, EPD is poised to realize significantly larger revenues
and an attractive bottom line.
General Information
EPD’s operations include the gathering, treating, processing,
transportation, and storage of natural gas. It also transports,
fracks, stores, imports, and exports NGLs. EPD gathers,
transports, and stores crude oil in addition to having offshore
production platforms. It deals with refined products and
petrochemicals and also has a marine transportation business
that operates primarily on the U.S. inland, Intracoastal
Waterway systems, and in the Gulf of Mexico. EPD generates
revenue mainly through fee-based services that involve the
transportation, refining, and storage of these energy products.
It accomplishes these services through its extensive network of
onshore and offshore pipelines, over 44,000 miles worth. Its
revenue streams are broken down into five reportable
segments: NGL pipelines & services, onshore natural gas
pipelines & services, onshore crude oil pipelines & services,
offshore pipelines & services, and petrochemical & refined
products services. Reported revenues were down by almost
45% from a year ago to just over $27 billion mostly due to
falling commodity prices. Costs also fell proportionally leading
to only a slight decline in net income from a year ago. Source:
10-Kxxvi
The onshore natural gas pipeline & services business segment
also includes about 19,300 miles of onshore natural gas pipeline
systems that provide transportation across Colorado, Louisiana,
New Mexico, Texas, and Wyoming. EPD has underground salt
domes for natural gas storage that it leases out and are vital to
its natural gas pipeline operations.
Its onshore crude oil pipelines & services include 5,400 miles of
onshore crude oil pipelines and crude oil storage terminals.
Included in this business segment is approximately 560 tractortrailer tank trucks that EPD leases and operates to transport
crude oil for itself and its customers.
EPD’s offshore pipeline & services recently got smaller with the
sale of part of its assets to Genesis, but still serves some of the
most active drilling and development regions. These regions
include Deepwater production fields, some as deep as 7 km
below the water. It also has about 2,350 miles of offshore
natural gas and crude oil pipelines paired with six offshore hub
platforms for drilling and storage.
Its petrochemical & refined products services business segment
includes propylene fractionation and related operations with
680 miles of pipelines. It also includes a butane isomerization
complex with the associated deisobutanizer units, octane
enhancement and high purity isobutylene production facilities,
refined products pipelines stretching over 4,200 miles, and
marine transportation.
Products and Markets
EPD’s NGL pipelines and services business segment includes a
natural gas processing plant, 19,300 miles of pipelines, storage
facilities, and 15 NGL fractionators. Within this segment, it also
has an import and export terminal it can operate out of.
Source: Factsetvi
April 12, 2016
8 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
Recent Earnings and Distribution Payout
Revenues were down from a year ago by almost 45% and
earnings per share also decreased by $0.21 from a year ago.
That being said, distributions continued to increase achieving
1.3 times its coverage ratio. The stock price has taken a big hit
in the past year currently towards the low end of the range
trading around the $23 - $25 mark in recent weeks. Positive
earnings reports and guidance have improved the price slightly,
but investor attitude in the energy space is low and will remain
that way until commodity prices see a rebound. Net income has
remained steady from 2014 to 2015 from $2.78 billion to $2.5
billion because cost of goods sold are mostly proportional to
revenue, the only other major expense is interest expense used
to finance acquisitions and capital expenditures. EPD is
famously consistent with its quarterly distribution increases.
This continued in or model by increasing at a rate of near $.07
per year before reaching $2.00 in 2022. The unitholder
distribution is what makes EPD such a popular investment for
investors.
Source: Factsetvii
Products and Distribution
Source: Factsetvii
As an MLP, EPD technically does not have employees and rather
leases out its assets for set fees. It is involved minimally in the
production of energy resources, but is rather almost entirely
focused on the distribution and transportation of energy
products. In order to thrive with fee-based compensation, it is
pivotal to always have the competitive advantage and be
looking for ways to increase transportation and storage
infrastructure. EPD has completed over $6 billion of projects
and acquisitions in the past two years and has close to $4 billion
planned for 2016 already. It is continually looking for ways to
set itself apart from competition because customer satisfaction
and ease of service is a large part of determining fees charged
to customers.
Business Segment Revenue Projections
Other Topics
EPD has been extremely consistent with each business
segment’s portion of revenue the past 5 years. No segment has
deviated more than 2% of the average for each segment: NGL’s
have always been approximately 37% of revenue, natural gas
8%, crude oil 40%, and petrochemicals 14% the past 5 years. For
years 2016-2022 we continued a similar distribution of revenue.
This assumption is grounded in out expectation that all
segments will continue to grow at a similar pace.
By way of definition, EPD is a Master Limited Partnership (MLP).
MLPs are flow through entities where the tax burden is placed
upon the shareholders rather than the corporation. It is
essentially a hybrid between a publicly traded corporation and
a partnership. They are essentially publicly traded partnerships.
They deal in “units” not “shares” and receive distributions
instead of dividends. However, dividends and distributions are
valued the same way. EPD also owns many subsidiaries under
the name Enterprise Products Holdings. Many of these
subsidiaries were strategic acquisitions to further EPD’s already
vast network of pipelines and transportation related services.
April 12, 2016
9 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
Catalysts for Growth/Change
The catalysts that will drive growth or a business restructuring
are the strength of the economy and population growth in
countries identified as emerging markets. As population
increases in nations such as India, China, and Indonesia demand
for energy will increase. EPD could be a potential supplier of
natural gas in 2018 when the U.S. will allow companies to
export natural gas. Currently however, there is an oversupply of
oil on the market. This has driven the price per barrel down to
around $40 per barrel. This is the lowest it has been in ten years.
An excess supply combined with a demand increasing at a
slower pace does not bode well for companies operating in the
energy sector. Oil reserves are nearing capacity and with prices
so low, E&P companies are pumping less. This means less new
oil in the pipelines of companies like EPD, and pumping natural
gas is less profitable as its price also drops. While onshore rig
counts in the United States have seen a sharp decline, the
amount of oil on the market is still too high. When this happens
companies in this sector make budget cuts and downsize. EPD is
focusing on its long term contracts by continuing to spend at
least $4 billion on capital expenditures in 2016 to build more
pipelines for anticipated increased future demand. An increase
in the price for oil will lead to increased activity and earnings for
E&Ps. In turn, they will require more midstream services which
will help EPD and its sub-industry rebound.
Key Investment Positives/Negatives:
Strengths
EPD’s corporate strategy and instrumental services are
strengths that should be positive indicators to potential
investors. This midstream service provider has a large scale and
integrated network of diversified assets in close proximity to
domestic supply basins and production hubs. It has built strong
relationships with major oil, natural gas, and petrochemical
companies. From those relationships it has been able to secure
long term contracts yielding fee based revenue. This avenue of
earnings should be viewed as a positive as fee based revenue is
less susceptible to the volatility of commodity prices. EPD’s four
different business segments under the midstream service
umbrella combined with its billions of dollars invested in growth
projects and acquisitions give the company a diversified
portfolio of assets.
Another strength of EPD is its size and partnership structure
which gives it the ability to access debt and equity financing
with ease. In 2010, EPD acquired Enterprise GP Holdings L.P.
which resulted in a more simplified partnership structure. The
ensuing capital structure gave EPD a lower long-term cost of
equity which enables it to acquire new assets more effectively.
Lastly, EPD’s proven track record as a dependable provider of
midstream services has allowed it to build a strong reputation
within the industry. The partnership prides itself on its
management team’s well established industry experience and
ability to operate nearly all of its facilities itself. As long as oil
and natural gas commodities are trading in North America, EPD
will be realizing revenue from its transportation and storage
services.
Weaknesses
EPD’s business relies heavily on the market, demand, and
production of hydrocarbon products. Even though oil and NGLs
must be transported or stored, EPD has to adjust its fees and
rates associated with transportation to keep customers happy.
It will not be able to justify keeping its pipeline and storage
rates high when their customers have to sell a barrel now at
$40 when it was almost double that a year ago and even triple
that when going three years back.
Opportunities
EPD has recently acquired Oiltanking Partners giving it access to
waterborne markets through marine terminals on the Houston
Ship Channel. EPD will also finish its final installment payment
for the purchase EFS Midstream in 2016. Strategic acquisitions
such as the ones listed above are going to be opportunities
facing larger MLP’s like EPD as smaller companies are not able
to withstand the low commodity prices and are having to
default on their loans. Growth is key for any company to thrive
as long as they are well thought out moves and it is also
important for investor confidence to know that EPD is able to
continue to grow despite the hard economic times.
Threats
Other midstream energy MLPs might be turned to during these
times if they offer lower fees. With production not halting and
storage capacities being reached with many MLP’s, downstream
oil companies will increasingly be looking for alternative
companies to transport their energy products.
ANALYSIS OF VALUATION METHODS
Overview
We are issuing a HOLD recommendation on Enterprise
Product’s Partners (EPD) stock based on the results of our
valuation model and key assumptions. We calculate EPD’s
intrinsic value to be between $27.00 and $30.00 with our
DCF/EP model and dividend discount model (DDM) producing a
$28.77 and $27.22 partially adjusted present value of the stock,
respectively. EPD has been able to endure the commodity price
cycle that is occurring supported largely by its liquefied
petroleum (LPG) exports to compensate for its lost revenue in
April 12, 2016
10 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
their natural gas liquids (NGLs) business segment. Despite the
low commodity prices, EPD was able to have record years both
in terms of gross operating margin, and distributable cash flow.
It posted figures of $5.3 billion and $4.00 billion respectively. It
was also able to maintain its coverage providing 1.3 times the
coverage of cash distributions paid in 2015 meaning it was able
to retain $2.6 billion. This can go towards capital expenditures
and other growth projects. The key assumptions used in our
financial models are revenue forecasts, distributions per share
payouts, capital expenditures and acquisitions, our WACC
estimation, and our continuing value growth assumptions.
Discounted Cash Flow (DCF) - Economic Profit (EP) Model
Our DCF/EP model calculates the intrinsic value, as of today, to
be $28.77. The DCF/EP model is the most accurate and best
representation of the true value EPD unitholders get when
investing. With the current price (as of 4/12/2016) being $25.01,
our valuation range of $27.00 to $30.00 would result in a small
premium of between 5% and 10% over EPD’s current price. This
slight premium represents small growth potential. The major
factors playing into the small premium and overall HOLD rating
are the continuing value growth assumptions, our continuing
value return on invested capital (ROIC), our WACC calculation,
and our cost of equity calculation. The DCF/EP valuation model
represents EPD’s intrinsic value well due to the emphasis placed
on invested capital and NOPLAT which have historically shown
steady growth. Historical information paired with capital
projects guidance from the board of directors establishes the
credibility of this valuation method as an accurate
representation of EPD’s intrinsic value.
Distributions Discount Model (DDM)
The DDM produces an output partially adjusted intrinsic value
of $27.22. In the nature of Master Limited Partnerships (MLPs),
almost all the cash income made is paid out in the form of
distributions to its unitholders, or limited partners. Once an
MLP meets its distribution coverage, it invests the remaining
cash in capital projects to further growth of its pipelines. In
looking at historical distributions for EPD, it has raised
distributions in 47 consecutive quarters while also providing
greater coverages allowing surpluses of cash that is able to be
invested back in the company. Since EPD has a historical track
record of raising distributions by an average of $0.07 per year,
we have forecasted this to continue through to our continuing
value year of 2022. The consistency and strong distribution
growth over the past years makes forecasting distributions
easier and leads to an accurate representation of EPD’s intrinsic
value of $27.22 as reflected in the DDM.
Relative Price to Earnings (P/E)
The relative P/E model bears a price of $28.65 and $25.82 in the
years 2016 and 2017 respectively. When assessing key
competitors and players in the MLP space with EPD, most
companies maintain relatively stable financial measurements
such as P/E since most all costs associated with MLPs are
variable costs. MLPs have no employees so their administrative
costs are low and they primarily function as
“toll roads” for oil so their prices, and therefore their costs, are
largely dependent upon their customers and the current market
price of oil. The consistent financial measures and cost
structure of MLPs leads to a valuable relative P/E model and an
accurate representation of the intrinsic value of the stock.
Forecasting Summary
Important notes to keep in mind when examining our
forecasted financial statements are that goodwill and
accumulated other comprehensive income were froze and
remain constant throughout the model. We also did not predict
any of the sale of fixed assets/investments line items and when
we do, it is either through guidance or a consistent growth rate
based on historical data. The “Other Funds” accounts on the
cash flow statement were treated as “plug” accounts to
maintain an average cash balance. We have chosen to forecast
both assets from acquisitions and sale of fixed assets based on
historical data with the help of guidance from management.
Many other Master Limited Partnerships (MLPs) are getting hit
hard with the current economic conditions and EPD is well
positioned to strategically acquire some of the smaller
companies adding to its already vast network of pipelines. We
chose 2022 as our continuing value year with a constant growth
rate of 4% moving forward. The key assumptions used in our
financial models are revenue forecasts, distributions per share
payouts, capital expenditures and acquisitions, our WACC
estimation, and our continuing value growth assumptions.
All other financial statement forecasting assumptions were
based upon historical data from the past 10 years. Forecasts
were based upon both year over year growth rates for certain
growth oriented line items. This is typically most balance sheet
accounts. Other more variable line items such as those on the
income statement, were forecasted as a percentage of sales. All
assumptions were in line with analyst estimates and company
guidance where applicable.
Key Assumptions:
Revenue Forecasts
EPD’s revenue segments can be broken into five main segments:
NGL pipelines & services, onshore natural gas pipelines &
services, onshore crude oil pipelines & services, and
petrochemical & refined products services. Its largest revenue
sources are from NGL pipelines & services and onshore crude
oil pipelines & services with all revenue streams increasing and
decreasing in a uniform matter. Revenues dropped almost 50%
in the past fiscal year, but we expect increases for the 2016
April 12, 2016
11 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
fiscal year. For revenue forecasts, we largely went in line with
analyst estimates and company guidance. Paired with historical
segmentation data, we arrived at our revenue forecasts. We, as
well as other analysts, predict increases in revenue beginning in
the current fiscal year in all business segments. We expect the
increases to continue until they level off at 4% in the continuing
value year of 2022.
Distributions per Share
EPD has increased its distributions for 47 consecutive quarters
by an average of $0.07 per year. Based upon these historical
figures, company guidance, and an already increased first
quarter FY2016 distribution, we have forecasted an increase of
$0.07 per year until our continuing value year. This increase will
have them at a $2.00 distribution to unitholders by 2022.
Capital Expenditures and Acquisitions
EPD has a history of successful capital investments leading to
heightened organic growth. It has completed $36 billion of
capital projects in its history with $16 billion of those projects
coming within the past five years. The capital expenditures are
solely aimed at broadening and extending its already integrated
midstream pipeline system and network. EPD announced three
more capital projects to be completed in 2016 to widen its
reach in the United States. It will add over 400 miles of crude oil
pipelines and two more natural gas processing plants. These
projects sum up to $6.8 billion of growth capital projects
currently under construction and are primarily financed through
long-term debt contracts.
EPD also recently completed the acquisition of Eagle Ford Shale
Midstream LLC in July 2015. This acquisition provided EPD with
condensate gathering and processing services in addition to
natural gas gathering, treating, and compression services. EPD
also gained access to the rich areas once owned exclusively by
Eagle Ford Shale further integrating its system of NGL and
condensates. It managed to pay for most of the acquisition
through the sale of offshore assets that had declining earnings
and were not a part of EPD’s overall growth strategy as a
company. The Eagle Ford Shale acquisition will provide much
greater synergies as well as higher, risk-adjusted returns on
invested capital.
year Treasury bond yields, the risk premium was a percentage
we chose as a group based on historical data, and our beta was
derived from a Bloomberg terminal using monthly beta data
over the course of the past five years.
We used a 5.92% rate for the after tax cost of debt. For the tax
rate, we took its marginal tax rate of -0.10% for the 2015 fiscal
year pulled off the 10-K. EPD had many bonds outstanding past
the 30 year mark so we took an average of the stated coupon
rates for the bonds maturing between the years of 2046 and
2076 to arrive at an average bond yield of 5.91%. After
multiplying the bond yield by one minus the marginal tax rate,
we reached an after tax cost of debt of 5.92%.
Our model utilized the capital asset pricing model (CAPM) for
the calculation of the WACC. The weight of equity is 68% and
the weight of debt is 32%. When multiplied by their respective
cost of capital, the WACC estimation comes out to be 6.533%.
We expect the weights of the two primary sources of capital to
rise to around 75% equity and 25% debt in the coming years as
EPD will have a tough time issue debt as most bonds in the
energy sector have “junk” ratings. We expect its operations to
balance back out to approximately 70% equity and 30% debt by
the continuing value year.
CV Growth Assumptions
We arrived at the continuing value of growth assumption of 4%
through a combination of variables. The primary drivers of the
continuing value assumption is last years’ GDP growth for the
United States of 1.9% and the fact that EPD consistently
increases distributions and has a track record of success when it
comes to capital investments and meeting desired coverage
ratios. Due to the combination of these factors, we multiplied
the United States prior year GDP growth rate by two to arrive at
or 4% continuing value growth rate. EPD shows promise in the
midstream energy industry and has proved this through its
ability to produce record years by many financial measures
despite a volatile energy commodity market. It will continue
this trend of steady growth through increased distributions and
successful capital investment projects and be able to maintain a
4% continuing value growth rate with ease.
SENSITIVITY ANALYSIS
WACC Estimation
We determined EPD’s weighted average cost of capital (WACC)
to be 6.533%. This percentage is derived after taking into
consideration the cost of equity, cost of debt, and included in
the cost of debt is EPD’s operating leases.
For our calculation of cost of equity, we utilized a 2.60% risk
free rate, a 5.00% risk premium, and a 0.845 beta arriving at a
final cost of equity of 6.83%. The risk free rate was based on 30
Risk Free Rate vs. Equity Risk Premium
When comparing the risk free rate to the equity risk premium,
both are derived from historical data and were decided upon as
a group. Small deviations from these metrics can result in a
change in stock price with a lower risk free rate and lower risk
premium both being advantageous for the intrinsic value of the
stock.
April 12, 2016
12 | EPD
ENTERPRISE PRODUCTS PARTNERS L.P. (NYSE: EPD) ● Recommendation: HOLD ●
bonds more than 30 years outstanding and being issued all the
way until 2076. Since the weight of the cost of debt is only 32%,
and the marginal tax rate is close to 0% on a yearly basis,
neither variable has that big of an effect on the stock price.
Even if EPD leveraged more of its operations with debt rather
than equity than the marginal tax rate still would not have a big
effect on the intrinsic value due to the nature of MLPs.
Beta vs. Equity Risk Premium
The beta and equity risk premium metrics are pivotal
measurements when arriving at our target price range. A small
decrease in the beta could mean a stock price increase of
almost $5.00, because of this we spent much time and
deliberation in choosing to measure the beta with a monthly
average over the last five years. When examining EPD’s
historical performance, many different economic and market
conditions are captured in the past five years and in the highly
cyclical industry of midfield energy transportation services we
feel as though a 0.845 beta best represents EPD’s performance
with respect to market fluctuations. The equity risk premium
was chosen by our group based upon historical average risk
premiums. Small deviations in the risk premium by even 25
basis points results in large fluctuations in stock price.
Continuing Value NOPLAT vs Pretax Cost of Debt
The CV Growth percentage was derived from consistent and
steady growth in capital expenditures over the past five years
spending over $16B and having over $6B planned in the next
three years. Further explanations are above in the assumptions
section, but this metric is also very important as small changes
in assumptions can have an effect on the intrinsic value of the
stock by more $10.00 if increased 100 bps. The pretax cost of
debt was arrived upon based on the average of the coupon
rates of bonds more than 30 years outstanding but has much
less of an effect on the intrinsic value due to EPD being
primarily financed through equity and being structured as an
MLP and flow through entity.
Revenue Growth vs. SG&A Growth
We carefully arrived at the initial revenue growth rate of 8%,
which is in line with analyst estimates and management
guidance. We chose to portray the variable about SG&A Growth
to show how in the MLP space SG&A costs are minimal and lead
to very little to no change in intrinsic value. MLP’s do not have
employees, just limited and general partners so their SG&A
expense is far lower than other companies in the oil & gas
industry.
Marginal Tax Rate vs. Pretax Cost of Debt
EPD’s marginal tax rate remains fairly constant between -1%
and 1% as all of its income is treated as flow through and taxed
at the individual unitholder level. As described earlier, the
pretax cost of debt is the bond coupon rate from the average of
Important Disclaimer
This report was created by students enrolled in the Security
Analysis (6F:112) class at the University of Iowa. The report was
originally created to offer an internal investment
recommendation for the University of Iowa Krause Fund and its
advisory board. The report also provides potential employers
and other interested parties an example of the students’ skills,
knowledge and abilities. Members of the Krause Fund are not
registered investment advisors, brokers or officially licensed
financial professionals. The investment advice contained in this
report does not represent an offer or solicitation to buy or sell
any of the securities mentioned. Unless otherwise noted, facts
and figures included in this report are from publicly available
sources. This report is not a complete compilation of data, and
its accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Krause
Fund may hold a financial interest in the companies mentioned
in this report.
April 12, 2016
13 | EPD
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April 12, 2016
14 | EPD
Enterprise Products Partners L.P.
Revenue Decomposition
Millions
Fiscal Years Ending Dec. 31
Revenue
YoY Growth
Business Segmentation
NGL Pipelines & Services
YoY Growth
Onshore Natural Gas Pipelines & Services
YoY Growth
Offshore Pipelines & Services
YoY Growth
Onshore Crude Oil Pipelines & Services
YoY Growth
Petrochemical & Refined Products Services
YoY Growth
TOTAL GROWTH
NGL Pipelines & Services
Sales of NGLs
YoY Growth
Midstream services
YoY Growth
Selected Volumetrics
NGL Transportational Volume (MBPD)
NGL Fractionation Volume (MBPD)
Equity NGL production (MBPD)
Fee-based natural gas processing (MMcf/d)
Onshore Crude Oil Pipelines & Services
Sales of crude oil
YoY Growth
Midstream services
YoY Growth
Selected Volumetric
Crude oil transportation volumes (MBPD)
Crude oil marine terminal volumes(MBPD)
Onshore Natural Gas Pipelines & Services
Sales of natural gas
YoY Growth
Midstream services
YoY Growth
Selected Volumetric
Natural gas transportation volumes(Bbtus/d)
Petrochemical & Refined Products & Services
Sales of petrochemical and refined products
YoY Growth
Midstream services
YoY Growth
Selected Volumetrics
Propylene fractional volumes (MBPD)
Butane isomerization volumes (MBPD)
Standalone DIB processing volumes (MBPD)
Octane additive and related plant production volumes (MBPD)
Transportation volumes, primarily refined products and petrochemicals (MBPD)
Refined products and petrochemical marine terminal volumes (MBPD)
Offshore Pipelines & Services
Sales of natural gas
YoY Growth
Sales of crude oil
YoY Growth
Midstream services
YoY Growth
Selected Volumetrics
Natural gas transporation volumes (BBtus/d)
Crude oil transportation volumes (MBPD)
Platform natural gas processing (MMcf/d)
Platform crude oil processing (MBPD)
2013
2014
2015
47,547
11.65%
47,952
0.85%
27,028
-43.64%
17,120
12.87%
3,359
0.18%
159
-17.19%
20,650
16.92%
6,259
0.81%
47,547
17,090
-0.18%
4,204
25.16%
157
-1.26%
20,184
-2.26%
6,317
0.93%
47,952
9,788
-42.73%
2,743
-34.75%
79
-49.68%
10,306
-48.94%
4,112
-34.91%
27,028
15,916
11.94%
1,204
26.77%
15,460
-2.86%
1,630
35.33%
8,045
-47.96%
1,743
6.96%
2,787
726
126
4,612
2,892
824
116
4,786
3,002
826
133
4,905
20,371
16.08%
279
146.99%
19,784
-2.88%
400
43.46%
9,733
-50.80%
573
43.11%
1,175
210
1,278
691
1,474
557
2,772
15.71%
967
1.01%
3,182
14.80%
1,022
5.71%
1,723
-45.86%
1,021
-0.14%
12,936
12,476
12,321
5,569
1.79%
690
-6.54%
5,576
0.12%
741
7.44%
3,334
-40.21%
778
5.05%
74
94
67
20
702
5
75
93
82
17
758
270
71
96
79
17
784
355
0.50
25.00%
5.70
72.73%
153
-18.42%
678
307
202
16
0.30
-40.00% -100.00%
8.60
3.20
50.88%
-62.79%
148
76
-3.46%
-48.88%
627
330
145
14
587
357
101
13
2016E
2017E
2018E
2019E
2020E
2021E CV 2022
29,156 32,071 35,920 39,512
7.87% 10.00% 12.00% 10.00%
41,882
6.00%
43,558
4.00%
45,300
4.00%
14,326
10.00%
3,968
10.00%
115
10.00%
15,084
10.00%
6,018
10.00%
39,512
15,185
6.00%
4,207
6.00%
122
6.00%
15,989
6.00%
6,379
6.00%
41,882
15,793
4.00%
4,375
4.00%
127
4.00%
16,628
4.00%
6,635
4.00%
43,558
16,425
4.00%
4,550
4.00%
132
4.00%
17,294
4.00%
6,900
4.00%
45,300
8,688
9,557 10,704 11,774
8.00% 10.00% 12.00% 10.00%
1,883
2,071
2,319
2,551
8.00% 10.00% 12.00% 10.00%
12,481
6.00%
2,704
6.00%
12,980
4.00%
2,813
4.00%
13,499
4.00%
2,925
4.00%
4,394
1,209
195
7,179
4,657
1,281
206
7,610
4,844
1,333
215
7,914
5,037
1,386
223
8,231
10,512 11,563 12,950 14,245
8.00% 10.00% 12.00% 10.00%
619
681
762
839
8.00% 10.00% 12.00% 10.00%
15,100
6.00%
889
6.00%
15,704
4.00%
925
4.00%
16,332
4.00%
962
4.00%
2,157
815
2,287
864
2,378
899
2,473
935
1,826
2,009
2,250
2,475
6.00% 10.00% 12.00% 10.00%
1,102
1,213
1,358
1,494
8.00% 10.00% 12.00% 10.00%
2,623
6.00%
1,584
6.00%
2,728
4.00%
1,647
4.00%
2,837
4.00%
1,713
4.00%
13,307
18,033
19,115
19,880
20,675
3,600
3,960
4,435
4,879
8.00% 10.00% 12.00% 10.00%
841
925
1,036
1,139
8.00% 10.00% 12.00% 10.00%
5,172
6.00%
1,208
6.00%
5,379
4.00%
1,256
4.00%
5,594
4.00%
1,306
4.00%
104
141
116
25
1,147
520
110
149
123
26
1,216
551
115
155
127
27
1,265
573
119
161
133
29
1,316
596
0.00%
0.00%
0.00%
0.00%
3.46
3.80
4.26
4.68
8.00% 10.00% 12.00% 10.00%
82
90
101
111
8.00% 10.00% 12.00% 10.00%
0.00%
4.96
6.00%
117
6.00%
0.00%
5.16
4.00%
122
4.00%
0.00%
5.37
4.00%
127
4.00%
911
554
157
20
947
576
163
21
985
599
169
22
10,571
8.00%
2,928
6.76%
85
7.73%
11,130
8.00%
4,441
8.00%
29,156
3,242
892
144
5,297
1,592
602
77
104
85
18
847
383
634
386
109
14
11,628
10.00%
3,221
10.00%
94
10.00%
12,243
10.00%
4,885
10.00%
32,071
3,566
981
158
5,827
1,751
662
14,637
84
114
94
20
931
422
697
424
120
15
13,024
12.00%
3,608
12.00%
105
12.00%
13,713
12.00%
5,471
12.00%
35,920
3,994
1,099
177
6,526
1,961
741
16,394
94
128
105
23
1,043
472
781
475
134
17
859
523
148
19
Enterprise Products Partners L.P.
Income Statement
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
REVENUE
47,727
47,951
27,028
29,156
32,071
35,920
39,512
41,882
43,558
45,300
EXPENSES
Total operating costs & expenses
Depreciation & amortization
Total general & administrative costs
TOTAL EXPENSES
43,090
1,149
188
44,427
42,938
1,283
215
44,435
22,358
1,311
193
23,861
23,908
1,206
147
25,261
26,619
1,279
163
28,061
29,813
1,465
182
31,460
33,585
1,472
204
35,261
36,019
1,637
210
37,865
37,895
1,620
213
39,729
38,958
1,713
226
40,897
167
3,467
260
3,776
374
3,540
102
3,998
119
4,130
140
4,600
159
4,410
177
4,194
195
4,024
218
4,621
(962)
(22.5)
(984)
(1,074)
0.5
3.0
(1,071)
(1,128)
0.7
(2.0)
(1,129)
(1,173)
0.8
6.0
(1,166)
(1,212)
0.9
2.0
(1,209)
(1,223)
1.0
(1.0)
(1,223)
(1,223)
1.1
1.0
(1,221)
(1,228)
1.3
2.0
(1,225)
Equity in income (loss) of unconsolidated affiliates
OPERATING INCOME
OTHER REVENUE (EXPENSES) AND GAINS (LOSSES)
Interest expense
Interest income
Other income (expense), net
TOTAL OTHER REVENUE (EXPENSES) AND GAINS (LOSSES)
(803)
0.9
(1.1)
(803)
(921)
1.3
0.6
(919)
INCOME BEFORE INCOME TAXES
Provision for (benefit from) income taxes
2,665
58
2,857
23
2,556
23
2,927
(7)
3,001
3
3,434
5
3,201
27
2,971
34
2,803
39
3,397
51
NET INCOME
2,607
2,834
2,533
2,934
2,998
3,429
3,173
2,937
2,764
3,346
Net income (loss) attributable to noncontrolling interests
(10)
(46)
(37)
-
-
-
-
-
-
-
NET INCOME ATTRIBUTABLE LIMITED PARTNERS
2,597
2,787
2,521
2,934
2,998
3,429
3,173
2,937
2,764
3,346
Basic EPS
Units Outstanding
Distributions per share
1.39
1,871
1.35
1.44
1,937
1.43
1.25
2,013
1.51
1.41
2,083
1.58
1.39
2,152
1.65
1.54
2,228
1.72
1.38
2,308
1.79
1.23
2,390
1.86
1.12
2,473
1.93
1.31
2,560
2.00
Enterprise Products Partners L.P.
Balance Sheet
Fiscal Years Ending Dec. 31
ASSETS
Current Assets:
Cash & cash equivalents
Accounts & notes receivable - trade, net
Inventories
Derivative assets
Prepaid & other current assets
Total Current Assets
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
57
5,482
1,093
326
7,023
74
3,826
1,014
226
576
5,491
35
2,571
1,038
259
410
4,313
54
2,920
704
203
262
4,142
45
3,229
773
213
487
4,748
51
3,553
884
236
529
5,253
37
4,074
1,034
208
637
5,990
33
4,235
1,107
280
665
6,320
45
4,349
1,141
297
702
6,534
63
4,511
1,183
252
723
6,732
34,018
(7,071)
26,947
2,437
1,462
2,080
189
40,139
38,047
(8,165)
29,882
3,042
4,302
4,200
184
47,101
40,612
(8,577)
32,035
2,629
4,037
5,745
193
48,952
43,861
(8,920)
34,941
2,525
3,916
5,745
187
51,455
46,493
(9,277)
37,216
2,452
3,838
5,745
190
54,188
48,817
(9,648)
39,169
3,318
3,761
5,745
198
57,443
50,770
(10,034)
40,736
4,203
3,686
5,745
202
60,560
52,801
(10,435)
42,365
4,970
3,575
5,745
210
63,185
54,913
(10,853)
44,060
5,359
3,432
5,745
218
65,347
57,109
(11,287)
45,822
5,028
3,295
5,745
227
66,849
1,125
6,483
304
327
8,239
2,206
4,746
336
586
7,874
1,864
3,428
993
352
529
7,166
1,550
3,468
863
326
574
6,781
1,890
3,924
817
253
468
7,352
1,249
4,343
936
384
501
7,412
1,271
5,197
982
316
438
8,204
1,572
5,518
990
331
453
8,864
1,932
5,792
783
346
427
9,280
1,016
5,963
999
396
497
8,871
Total long-term debt
Deferred tax liabilities
Other long-term liabilities
TOTAL LIABILITIES
16,227
61
172
24,698
19,157
67
311
27,409
20,827
46
412
28,451
21,660
96
239
28,777
22,526
65
209
30,153
23,202
67
342
31,023
23,666
77
379
32,326
24,140
89
339
33,432
24,381
67
314
34,042
24,625
94
403
33,993
EQUITY
Minority/Noncontrolling interests
Total partners' equity
TOTAL EQUITY
226
15,215
15,440
1,629
18,063
19,692
206
20,295
20,501
760
21,919
22,679
363
23,672
24,035
854
25,566
26,420
623
27,611
28,234
485
29,268
29,753
282
31,024
31,306
592
32,265
32,857
TOTAL LIABILITIES & EQUITY
40,139
47,101
48,952
51,455
54,188
57,443
60,560
63,185
65,347
66,849
Property, plant & equipment, at cost
Less: accumulated depreciation
Property, plant & equipment, net
Investments in unconsolidated affiliates
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Current maturities of debt
Accounts Payable
Accrued expenses
Accrued interest
Derivative liabilities
Other current liabilities
Total current liabilities
Enterprise Products Partners L.P.
Cash Flow Statement
Fiscal Years Ending Dec. 31
2016E
2017E
2018E
2019E
2020E
2021E CV 2022
CASH FLOW FROM OPERATING ACTIVITIES
Net income
Depreciation, amortization & accretion
Deferred Taxes & Investment Tax Credit
Other Funds
Changes in Working Capital
NET OPERATING CASH FLOW
2,934
1,405
16
42
25
4,423
2,998
1,425
(10)
196
77
4,686
3,429
1,594
3
227
(16)
5,237
3,173
1,692
11
224
183
5,284
2,937
1,760
20
4
87
4,807
2,764
1,827
8
145
126
4,870
3,346
1,865
17
92
(33)
5,287
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures
Net Assets from Acquisitions
Sale of Fixed Assets & Businesses
Purchase/Sale of Investments
Other Funds
NET INVESTING CASH FLOW
(4,100)
(1,044)
1,643
(321)
36
(3,786)
(3,310)
(1,692)
1,330
(628)
134
(4,166)
(3,194)
(1,659)
1,162
(90)
74
(3,707)
(2,954)
(1,764)
418
(78)
(82)
(4,460)
(3,393)
(1,825)
335
(519)
19
(5,383)
(3,346)
(1,287)
1,423
(691)
11
(3,890)
(3,967)
(1,589)
1,316
(864)
(77)
(5,181)
CASH FLOW FROM FINANCING ACTIVIES
Cash Disbursements Paid
Change in Capital Stock
Issuance/Reduction of Debt, Net
Other Funds
NET FINANCING CASH FLOW
(3,292)
1,624
1,248
(198)
(618)
(3,551)
1,753
1,323
(54)
(528)
(3,833)
1,894
655
(240)
(1,524)
(4,131)
2,045
1,606
(359)
(838)
(4,445)
1,657
3,417
(57)
572
(4,773)
1,756
2,103
(54)
(968)
(5,119)
1,241
4,031
(240)
(87)
-
-
-
-
-
-
-
Exchange Rate Effect
NET CHANGE IN CASH
Beginning Cash Balance
Net Change in Cash
Ending Cash Balance
19
(8)
6
(14)
(4)
12
19
35.0
18.7
53.7
53.7
(8.3)
45.4
45.4
5.6
51.1
51.1
(14.3)
36.8
36.8
(4.0)
32.8
32.8
11.8
44.6
44.6
18.6
63.2
Enterprise Products Partners L.P.
Common Size Income Statement
Fiscal Years Ending Dec. 31
REVENUE
EXPENSES
Total operating costs & expenses
Depreciation & amortization
Total general & administrative costs
TOTAL EXPENSES
Equity in income (loss) of unconsolidated affiliates
OPERATING INCOME
OTHER REVENUE (EXPENSES) AND GAINS (LOSSES)
Interest expense
Interest income
Other income (expense), net
TOTAL OTHER REVENUE (EXPENSES) AND GAINS (LOSSES)
INCOME BEFORE INCOME TAXES
Provision for (benefit from) income taxes
NET INCOME
Net income (loss) attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE LIMITED PARTNERS
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
90.28%
2.41%
0.39%
93.09%
89.54%
2.68%
0.45%
92.67%
82.72%
4.85%
0.71%
88.28%
82.00%
4.14%
0.50%
86.64%
83.00%
3.99%
0.51%
87.49%
83.00%
4.08%
0.51%
87.58%
85.00%
3.73%
0.52%
89.24%
86.00%
3.91%
0.50%
90.41%
87.00%
3.72%
0.49%
91.21%
86.00%
3.78%
0.50%
90.28%
0.35%
7.26%
0.54%
7.87%
1.38%
13.10%
0.35%
13.71%
0.37%
12.88%
0.39%
12.81%
0.40%
11.16%
0.42%
10.01%
0.45%
9.24%
0.48%
10.20%
-1.68%
0.00%
0.00%
-1.68%
-1.92%
0.00%
0.00%
-1.92%
-3.56%
0.00%
-0.08%
-3.64%
-3.68%
0.00%
0.01%
-3.67%
-3.52%
0.00%
-0.01%
-3.52%
-3.27%
0.00%
0.02%
-3.25%
-3.07%
0.00%
0.01%
-3.06%
-2.92%
0.00%
0.00%
-2.92%
-2.81%
0.00%
0.00%
-2.80%
-2.71%
0.00%
0.00%
-2.70%
5.58%
0.12%
5.96%
0.05%
9.46%
0.09%
10.04%
-0.03%
9.36%
0.01%
9.56%
0.01%
8.10%
0.07%
7.09%
0.08%
6.44%
0.09%
7.50%
0.11%
5.46%
5.91%
9.37%
10.06%
9.35%
9.55%
8.03%
7.01%
6.35%
7.39%
-0.02%
-0.10%
-0.14%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.44%
5.81%
9.33%
10.06%
9.35%
9.55%
8.03%
7.01%
6.35%
7.39%
Enterprise Products Partners L.P.
Common Size Balance Sheet
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
ASSETS
Current Assets:
Cash & cash equivalents
Accounts & notes receivable - trade, net
Inventories
Derivative assets
Prepaid & other current assets
Total Current Assets
0.12%
11.49%
2.29%
0.00%
0.68%
14.72%
0.16%
8.02%
2.13%
0.47%
1.21%
11.50%
0.13%
9.51%
3.84%
0.96%
1.52%
15.96%
0.18%
10.01%
2.41%
0.70%
0.90%
14.21%
0.14%
10.07%
2.41%
0.66%
1.52%
14.81%
0.14%
9.89%
2.46%
0.66%
1.47%
14.62%
0.09%
10.31%
2.62%
0.53%
1.61%
15.16%
0.08%
10.11%
2.64%
0.67%
1.59%
15.09%
0.10%
9.99%
2.62%
0.68%
1.61%
15.00%
0.14%
9.96%
2.61%
0.56%
1.60%
14.86%
Property, plant & equipment, at cost
Less: accumulated depreciation
Property, plant & equipment, net
Investments in unconsolidated affiliates
Intangible assets, gross
Less: accumulated amortization - intangible assets
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
71.28%
-14.82%
56.46%
5.11%
5.47%
-2.41%
3.06%
4.36%
0.40%
84.10%
79.72%
-17.11%
62.61%
6.37%
11.63%
-2.61%
9.01%
8.80%
0.39%
98.69%
150.26%
-31.73%
118.53%
9.73%
0.00%
0.00%
14.94%
21.26%
0.71%
181.12%
150.44%
-30.59%
119.84%
8.66%
0.00%
0.00%
13.43%
19.70%
0.64%
176.48%
144.97%
-28.93%
116.04%
7.64%
0.00%
0.00%
11.97%
17.91%
0.59%
168.96%
135.91%
-26.86%
109.05%
9.24%
0.00%
0.00%
10.47%
15.99%
0.55%
159.92%
128.49%
-25.39%
103.10%
10.64%
0.00%
0.00%
9.33%
14.54%
0.51%
153.27%
126.07%
-24.92%
101.15%
11.87%
0.00%
0.00%
8.54%
13.72%
0.50%
150.86%
126.07%
-24.92%
101.15%
12.30%
0.00%
0.00%
7.88%
13.19%
0.50%
150.02%
126.07%
-24.92%
101.15%
11.10%
0.00%
0.00%
7.27%
12.68%
0.50%
147.57%
LIABILITIES
Current Liabilities
Current maturities of debt
Payable
Accrued expenses
Accrued interest
Derivative liabilities
Other current liabilities
Total current liabilities
2.36%
13.58%
0.00%
0.64%
0.00%
0.68%
17.26%
4.62%
9.94%
0.00%
0.70%
0.00%
1.23%
16.50%
6.90%
12.68%
3.67%
1.30%
0.00%
1.96%
26.51%
5.32%
11.89%
2.96%
1.12%
0.00%
1.97%
23.26%
5.89%
12.24%
2.55%
0.79%
0.00%
1.46%
22.92%
3.48%
12.09%
2.60%
1.07%
0.00%
1.39%
20.63%
3.22%
13.15%
2.49%
0.80%
0.00%
1.11%
20.76%
3.75%
13.18%
2.36%
0.79%
0.00%
1.08%
21.16%
4.44%
13.30%
1.80%
0.79%
0.00%
0.98%
21.30%
2.24%
13.16%
2.20%
0.87%
0.00%
1.10%
19.58%
Total long-term debt
Deferred tax liabilities
Other long-term liabilities
TOTAL LIABILITIES
34.00%
0.13%
0.36%
51.75%
40.14%
0.14%
0.65%
57.43%
77.06%
0.17%
1.52%
105.27%
74.29%
0.33%
0.82%
98.70%
70.24%
0.20%
0.65%
94.02%
64.59%
0.19%
0.95%
86.37%
59.90%
0.19%
0.96%
81.81%
57.64%
0.21%
0.81%
79.82%
55.97%
0.15%
0.72%
78.15%
54.36%
0.21%
0.89%
75.04%
EQUITY
Minority/Noncontrolling interests
Total partners' equity
TOTAL EQUITY
0.47%
31.88%
32.35%
3.41%
37.85%
41.26%
0.76%
75.09%
75.85%
2.61%
75.18%
77.78%
1.13%
73.81%
74.94%
2.38%
71.17%
73.55%
1.58%
69.88%
71.46%
1.16%
69.88%
71.04%
0.65%
71.22%
71.87%
1.31%
71.22%
72.53%
TOTAL LIABILITIES & EQUITY
84.10%
98.69%
181.12%
176.48%
168.96%
159.92%
153.27%
150.86%
150.02%
147.57%
Enterprise Products Partners L.P.
Value Driver Estimation
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
Marginal Tax Rate
2.16%
0.81%
-0.10%
-0.25%
0.10%
0.15%
0.85%
1.15%
1.40%
1.50%
WACC
Normal Cash (% of sales)
Cost of Debt
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
6.53%
3.40%
7.03%
47,727
(43,090)
(1,149)
(188)
(1,337)
18.9
3,319
47,951
(42,938)
(1,283)
(215)
(1,497)
29.9
3,546
27,028
(22,358)
(1,311)
(193)
(1,504)
62.0
3,229
29,156
(23,908)
(1,206)
(147)
(1,353)
55.8
3,951
32,071
(26,619)
(1,279)
(163)
(1,441)
54.7
4,065
35,920
(29,813)
(1,465)
(182)
(1,647)
56.4
4,516
39,512
(33,585)
(1,472)
(204)
(1,676)
59.7
4,310
41,882
(36,019)
(1,637)
(210)
(1,847)
64.5
4,082
43,558
(37,895)
(1,620)
(213)
(1,833)
67.1
3,896
45,300
(38,958)
(1,713)
(226)
(1,939)
69.8
4,473
Less: Adjusted Taxes:
Provision for Income Taxes
(+)Tax Shield on Interest Expense
(-)Tax Sheild on Non-Operating Income, Net
(+)Tax Shield on Interest on Operating Leases
Total Adjusted Taxes
57.50
17.33
(0.02)
0.41
75.22
23.10
7.46
(0.01)
0.24
30.79
23.10
(0.96)
(0.06)
22.08
(7.32)
(2.69)
0.00
(0.14)
(10.14)
3.00
1.13
(0.00)
0.05
4.18
5.15
1.76
(0.00)
0.08
6.99
27.21
10.30
(0.01)
0.51
38.01
34.17
14.07
(0.01)
0.74
48.96
39.25
17.12
(0.02)
0.94
57.29
50.95
18.42
(0.02)
1.05
70.39
Plus: Change in Deffered Tax (DT) Liabilities:
DT Liabilities
DT Current Assets
DT Long-Term Assets
Net DT Liabilities
Change in DT Liabilities (YoY)
60.80
61
38.30
66.60
67
5.80
46.00
46
(20.60)
96.00
96
50.00
65.00
65
(31.00)
67.00
67
2.00
77.00
77
10.00
89.00
89
12.00
67.00
67
(22.00)
94.00
94
27.00
NOPLAT = EBITA - Adjusted Taxes + Change in DT
3,282
3,521
3,186
4,011
4,030
4,511
4,282
4,045
3,817
4,430
Operating Current Assets:
Normal Cash
Short-Term Receivables, Net
Inventory
Other Current Assets
Operating Current Assets
57
5,482
1,093
326
6,958
74
3,826
1,014
576
5,491
35
2,571
1,038
410
4,054
54
2,920
704
262
3,939
45
3,229
773
487
4,535
51
3,553
884
529
5,017
37
4,074
1,034
637
5,782
33
4,235
1,107
665
6,040
45
4,349
1,141
702
6,237
63
4,511
1,183
723
6,480
Operating Current Liabilities:
Accounts Payable & Accrued Liabilities
Other Operating Liabilities
Operating Current Liabilities
6,483
327
6,809
4,746
586
5,332
4,421
529
4,950
4,331
574
4,905
4,741
468
5,209
5,278
501
5,779
6,179
438
6,617
6,508
453
6,961
6,575
427
7,002
6,962
497
7,459
NOPLAT Computation
EBITA:
Net Sales
(-)Cost of Goods Sold
(-)Depreciation & Amortization
(-)Other SG&A
(-)Operating Expenses
(+)Implied Interest on Operating Leases
EBITA
Invested Capital Computation
148
159
(896)
(966)
(674)
(763)
(836)
(921)
(765)
(979)
26,947
269
1,462
189
(327)
29,882
425
4,302
184
(586)
32,035
882
4,037
193
(529)
34,941
794
3,916
187
(574)
37,216
778
3,838
190
(468)
39,169
801
3,761
198
(501)
40,736
849
3,686
202
(438)
42,365
917
3,575
210
(453)
44,060
954
3,432
218
(427)
45,822
992
3,295
227
(497)
28,689
34,366
35,722
38,297
40,879
42,665
44,199
45,693
47,472
48,860
NOPLAT
Beginning Invested Capital
12.48%
3,282
26,294
12.27%
3,521
28,689
9.27%
3,186
34,366
11.23%
4,011
35,722
10.52%
4,030
38,297
11.04%
4,511
40,879
10.04%
4,282
42,665
9.15%
4,045
44,199
8.35%
3,817
45,693
9.33%
4,430
47,472
Beginning Invested Captial
ROIC
WACC
1,564
26,294
12.48%
6.53%
1,647
28,689
12.27%
6.53%
941
34,366
9.27%
6.53%
1,677
35,722
11.23%
6.53%
1,528
38,297
10.52%
6.53%
1,840
40,879
11.04%
6.53%
1,495
42,665
10.04%
6.53%
1,157
44,199
9.15%
6.53%
832
45,693
8.35%
6.53%
1,328
47,472
9.33%
6.53%
NOPLAT
Change in Invested Capital
887
3,282
2,394
(2,156)
3,521
5,677
1,830
3,186
1,356
1,436
4,011
2,575
1,449
4,030
2,582
2,725
4,511
1,786
2,749
4,282
1,533
2,550
4,045
1,494
2,038
3,817
1,779
3,041
4,430
1,389
Net Operating Working Capital
Plus: Net PPE
Plus: PV of Operating Leases
Plus: Net Intangible (Non-Goodwill) Assets
Plus: Other Operating Assets
Less: Other Operating Liabilities
Invested Capital
Value Drivers:
ROIC
EP
FCF
Enterprise Products Partners L.P.
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity
Risk Free Rate
Risk Premium
Beta
Cost of Equity
Cost of Debt
Bond Yield
Tax Rate
After Tax Cost of Debt
2.60%
5.00%
0.845
6.83%
5.91%
-0.10%
5.92%
Variable Weights
Total Equity
# Shares
$/Share
Total Debt
Enterprise Value
Weight of Equity
Weight of Debt
50,345
2,013
$25.01
23,573
73,918
68%
32%
WACC
6.533%
Enterprise Products Partners L.P.
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth
CV ROIC
WACC
Cost of Equity
DCF Model
Fiscal Years Ending Dec. 31
NOPLAT
Change in Invested Capital
FCF
Continuing Value
4.00%
9.33%
6.53%
6.83%
2015
3,186
1,356
1,830
Periods to Discount
Present Value of FCF
Value of Operating Assets
Add: Excess Cash
Add: Derivative Securities
Add: Investment in affiliated companies
Less: St Debt
Less: LT Debt
Less: Accumulated Minority Interests
Less: PV of Operating Leases
Less: Employee Stock Options
Value of Equity
Shares Outstanding
Intrinsic Value
Intrinsic Value (Adjusted)
EP Model
Fiscal Years Ending Dec. 31
Beginning Invested Capital
ROIC
Economic Profit
Continuing Value
Periods to Discount
PV(EP)
Present Value of Economic Profit
Plus: Beginning Invested Capital
Value of Operating Assets
Add: Excess Cash
Add: Derivative Securities
Add: Investment in affiliated companies
Less: St Debt
Less: LT Debt
Less: Accumulated Minority Interests
Less: PV of Operating Leases
Less: Employee Stock Options
Value of Equity
Shares Outstanding
Intrinsic Value
Intrinsic Value (Adjusted)
2016E
4,011
2,575
1,436
2017E
4,030
2,582
1,449
2018E
4,511
1,786
2,725
2019E
4,282
1,533
2,749
2020E
4,045
1,494
2,550
2021E
3,817
1,779
2,038
CV 2022
4,430
1,389
3,041
99,900
1
1,348
2
1,276
3
2,254
4
2,134
5
1,858
6
1,394
6
68,337
2016E
35,722
11.23%
1,677
2017E
38,297
10.52%
1,528
2018E
40,879
11.04%
1,840
2019E
42,665
10.04%
1,495
2020E
44,199
9.15%
1,157
2021E
45,693
8.35%
832
1
1,574
2
1,346
3
1,522
4
1,160
2022E
47,472
9.33%
1,328
52,428
6
35,864
78,601
259
2,629
(1,864)
(20,827)
(206)
(882)
(3)
$57,707.71
2013
$28.67
$28.77
2015
34,366
9.27%
42,879
35,722
78,601
259
2,629
(1,864)
(20,827)
(206)
(882)
(3)
$57,707.71
2013
$28.67
$28.77
5
843
6
569
Enterprise Products Partners L.P.
Distribution Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31
EPS
2016E
$
Key Assumptions
CV growth
CV ROE
Cost of Equity
1.41 $
2017E
1.39 $
2018E
1.54 $
2019E
1.38 $
2020E
1.23 $
2021E
CV 2022
1.12 $
1.31
4.00%
10.18%
6.83%
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends Per Share
Period
1.58
1
1.50
2
1.72
3
1.79
4
1.86
5
1.93
6
21.49
1.31
28.09
2.00
6
Discounted Cash Flows
1.48
1.31
1.41
1.37
1.34
1.30
18.90
Intrinsic Value
As of Today
$
$
$
27.12
27.22
Enterprise Products Partners L.P.
Relative Valuation Models
Ticker
Company
ETP
PPA
SEP
KMI
MMP
Energy Transfer Partners
Plains All American Piplines
Spectra Energy Partners
Kinder Morgan Inc.
Magellan Midstream Partners
Price
$34.87
$36.19
$48.52
$19.24
$68.48
EPS
2016E
EPS
2017E
$1.38
$2.05
$3.24
$0.70
$3.43
$2.42
$2.31
$3.41
$0.82
$3.74
Average
EPD
Enterprise Products Partners L.P.
Implied Value:
Relative P/E (EPS16)
Relative P/E (EPS17)
EV/EBITDA 16
EV/EBITDA 17
$25.01
$1.36
$
$
$
$
28.65
25.82
15.32
15.53
$1.50
P/E 16
P/E 17
EV/EBITDA 16
EV/EBITDA 17
25.3
17.7
15.0
27.5
20.0
21.1
14.4
15.7
14.2
23.5
18.3
17.2
8.7
9.94
10.4
10.9
16.4
11.3
7.5
9.26
9.4
10.3
15.3
10.4
18.4
16.7
13.4
12.5
Enterprise Products Partners L.P.
Key Management Ratios
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
0.85
0.72
0.00
0.70
0.57
0.00
0.60
0.46
0.00
0.61
0.51
0.00
0.65
0.54
0.00
0.71
0.59
0.00
0.73
0.60
0.00
0.71
0.59
0.00
0.70
0.58
0.00
0.76
0.63
0.00
1.19
1.77
10.73
1.02
1.60
9.75
0.55
0.84
5.81
0.57
0.83
9.12
0.59
0.86
11.68
0.63
0.92
11.68
0.65
0.97
11.65
0.66
0.99
10.98
0.67
0.99
10.48
0.68
0.99
10.55
0.43
1.12
1.05
0.17
0.45
1.08
0.97
0.14
0.46
1.11
1.02
0.12
0.45
1.02
0.96
0.13
0.45
1.02
0.94
0.12
0.43
0.93
0.88
0.13
0.41
0.88
0.84
0.11
0.41
0.86
0.81
0.10
0.40
0.84
0.78
0.09
0.38
0.78
0.75
0.10
Liquidity Ratios
Current Ratio
Quick Ratio
Cash Ratio
Current Assets / Current Liabilities
(Total Current Assets - Inventories) / TotalCurrent Liabilities
(Cash + Cash Equivalents) / Total Liaiblities
Asset-Management Ratios
Total Asset Turnover Ratio
Fixed Asset Turnover Ratio
Receivables Turnover Ratio
Revenue / Total Assets
Revenue / Net PPE
Revenue / Average Accounts Receivable
Financial Leverage Ratios
Debt/Total Assets
Debt to Equity Ratio
LT Debt to Equity Ratio
Interest Coverage Ratio
Total Debt / Total Assets
Total Debt / Total Shareholder's Equity
Long Term Debt / Total Shareholder's Equity
Net Income / Total Shareholder's Equity
Profitability Ratios
Gross Margin
Operating Margin
Return on Equity
Return on Assets
(Revenue - Cost of goods sold) / Revenues
Operating Income / Net Sales
Net Income / Total Shareholder's Equity
Net Income / Total Assets
9.32%
7.26%
16.82%
6.47%
10.01%
7.87%
14.15%
5.92%
16.57%
13.10%
12.30%
5.15%
17.50%
13.71%
12.94%
5.70%
16.49%
12.88%
12.47%
5.53%
16.49%
12.81%
12.98%
5.97%
14.48%
11.16%
11.24%
5.24%
13.50%
10.01%
9.87%
4.65%
12.51%
9.24%
8.83%
4.23%
13.50%
10.20%
10.18%
5.00%
Payout Policy Ratios
Payout Ratio
Dividend Coverage Ratio
Dividends / EPS
Net Income / Dividend Payout
97.26%
1.03
99.37%
1.01
120.56%
0.83
112.18%
0.89
118.44%
0.84
111.78%
0.89
130.16%
0.77
151.35%
0.66
172.70%
0.58
153.01%
0.65
Present Value of Operating Lease Obligations (2015)
Fiscal Years Ending Dec. 31
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Operating
Leases
298
246
225
29
56
142
996
114
882
Capitalization of Operating Leases
4.52%
2.5
Lease
Commitment
298
246
225
29
56
56
Present Value of Operating Lease Obligations (2011)
Fiscal Years Ending Dec. 31
2012
2013
2014
2015
2016
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Operating
Leases
58.3
47.4
39.7
38.2
32.3
170.5
386.4
75
311
Fiscal Years Ending Dec. 31
2011
2012
2013
2014
2015
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
4.52%
5.3
Lease
Commitment
58.3
47.4
39.7
38.2
32.3
32.3
Present Value of Operating Lease Obligations (2007)
Fiscal Years Ending Dec. 31
2008
2009
2010
2011
2012
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Lease
Commitment
60.5
62
56.4
48.9
42.3
42.3
Present Value of Operating Lease Obligations (2010)
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Operating
Leases
27.789
25.866
23.306
23.785
23.187
201.826
325.759
85
241
Fiscal Years Ending Dec. 31
2007
2008
2009
2010
2011
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Operating
Leases
48.2
45.9
38.7
31.4
25.8
185.8
375.8
82
294
Fiscal Years Ending Dec. 31
2010
2011
2012
2013
2014
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
4.52%
7.2
Lease
Commitment
48.2
45.9
38.7
31.4
25.8
25.8
Present Value of Operating Lease Obligations (2006)
PV Lease
Payment
46.1
42.0
33.9
26.3
20.7
124.8
293.8
4.52%
8.7
Lease
Commitment
27.789
25.866
23.306
23.785
23.187
23.187
PV Lease
Payment
26.6
23.7
20.4
19.9
18.6
131.4
240.6
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
4.52%
4.7
Lease
Commitment
42.4
41.2
38.2
35.4
30.7
30.7
Present Value of Operating Lease Obligations (2009)
Operating
Leases
19.19
19.877
16.374
15.688
16.263
187.308
274.7
83
192
4.52%
11.5
Lease
Commitment
19.19
19.877
16.374
15.688
16.263
16.263
PV Lease
Payment
18.4
18.2
14.3
13.1
13.0
115.1
192.2
Operating
Leases
51.3
44.1
42.8
37.5
33.3
154
363
69
294
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
PV Lease
Payment
40.6
37.7
33.5
29.7
24.6
102.5
268.6
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Operating
Leases
37.6
35.3
32.7
27.3
21.5
189.5
343.9
84
260
Fiscal Years Ending Dec. 31
2009
2010
2011
2012
2013
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
4.52%
4.6
Lease
Commitment
51.3
44.1
42.8
37.5
33.3
33.3
Present Value of Operating Lease Obligations (2008)
PV Lease
Payment
49.1
40.4
37.5
31.4
26.7
109.2
294.3
Operating
Leases
32.299
27.541
27.831
27.066
24.481
192.201
331.419
81
250
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Present Value of Operating Lease Obligations (2012)
Fiscal Years Ending Dec. 31
2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
PV Lease
Payment
57.9
56.8
49.4
41.0
33.9
186.0
424.9
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Operating
Leases
42.4
41.2
38.2
35.4
30.7
144.9
332.8
64
269
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
PV Lease
Payment
55.8
43.4
34.8
32.0
25.9
119.2
311.1
Capitalization of Operating Leases
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
4.52%
6.4
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Present Value of Operating Lease Obligations (2013)
Fiscal Years Ending Dec. 31
2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
PV Lease
Payment
285.1
225.2
197.1
24.3
44.9
105.3
881.9
Capitalization of Operating Leases
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Operating
Leases
60.5
62
56.4
48.9
42.3
272.6
542.7
118
425
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Present Value of Operating Lease Obligations (2014)
Fiscal Years Ending Dec. 31
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
4.52%
8.8
Lease
Commitment
37.6
35.3
32.7
27.3
21.5
21.5
PV Lease
Payment
36.0
32.3
28.6
22.9
17.2
123.1
260.1
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
4.52%
7.9
Lease
Commitment
32.299
27.541
27.831
27.066
24.481
24.481
PV Lease
Payment
30.9
25.2
24.4
22.7
19.6
127.3
250.1
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares):
Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
317,800
1.34
237,640
$
16.14
6.83%
$25.01
2016E
2017E
2018E
2019E
2020E
2021E
CV 2022
237,640
237,640
237,640
237,640
237,640
237,640
237,640
$
16.14 $
16.14 $
16.14 $
16.14 $
16.14 $
16.14 $
16.14
3,835,504
3,835,504
3,835,504
3,835,504
3,835,504
3,835,504
3,835,504
$
0
25.01 $
2,013
237,640
239,653
0
26.72 $
2,083
237,640
239,723
0
28.54 $
2,152
237,640
239,791
0
30.49 $
2,228
237,640
239,868
0
32.57 $
2,308
237,640
239,947
0
34.79 $
2,390
237,640
240,029
0
37.17
2,473
237,640
240,113
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
EPD
$25.01
2.60%
6.40%
22.58%
Number of
Shares in
Average Average
Exercise Remaining
Price Life (yrs)
16.14
1.00
16.14
2.00
16.14
1.34
Range of Outstanding
Options
Range 1
Range 2
Total
0.21
0.11
0.32
B-S
Option Value of Options
Price
Granted in MM
$ 8.25 $
1.74
$ 7.61 $
0.82
$ 24.11 $
2.55