Energy Transfer LP due diligence report.

Oto Suvari
Dec 16, 2019 · 4 min read

Hatchworks has conducted due diligence on Energy Transfer LP, a company that owns and operates a portfolio of energy assets, specialising in the transportation and storage of natural gas, propane, crude oil and refined petroleum products. Headquartered in Dallas, United States, Energy Transfer LP is listed on the New York Stock Exchange under the symbol ‘’ET’’.

Financials — Energy Transfer LP
(Source: Marketscreener.com)

Energy Transfer LP’s current market cap is $32.3B and stock price is around $12.73.

With a predicted net-income growth of 6.1% for 2020E and 2021E, and a net income estimate for 2021E of in excess of $4.2B, this points to a P/E ratio of 7.3x.

The revenue/sales forecast is $59B for 2020E, indicating an EV/Sales ratio of 1.36x.

In terms of profitability, an operating margin of 12.9% is predicted for 2020E. This is notably much lower than competitors such as Magellan Midstream Partners (MMP) that has a strong operating margin of 42% for 2020E.

Energy Transfer LP (ET) is a yielding equity with a superior yield of 10.3% for 2020E. In contrast, competitor Enbridge (ENB) offers a lower yield of 6.38% for 2020E.

Latest news shows that Energy Transfer LP (ET) has completed its acquisition of SemGroup’s Houston Fuel Oil Terminal (HFOTCO) at an attractive price, which gives Energy Transfer LP (ET) a boost in crude oil transportation, terminalling, and export capabilities. SemGroup also expands Energy Transfer’s oil and natural gas liquids infrastructure in the production basins of Colorado and Oklahoma. Those assets could generate stable cashflow backed by long-term contracts, increasing diversification and reducing direct exposure to commodity prices.

It is worth noting that, after the previous recession, the share price was at a high of $8.52, after plummeting 61% to a low of $3.32 during that period before steadily recovering.

It has come to our attention that in November 2019 a global investor rights law firm filed a class action lawsuit on behalf of purchasers of the securities of Energy Transfer LP between February 2017 and November 2019. The lawsuit seeks to recover damages for Energy Transfer investors under the federal securities laws. The claim is that during this period there was a failure to disclose how the Mariner East pipeline project permits were secured, and that Energy Transfer’s public statements about this were misleading. As a consequence, the lawsuit claims that when the true details entered the market, investors suffered damages. However, Energy Transfer LP has around $2.3B in “other liabilities”, so has more than adequate reserves to protect themselves from any law cases that may arise.

Our internal analysis highlights that Energy Transfer LP (ET) outperforms its peers in terms of a solid P/E ratio and a superior yield. Also, the acquisition with SemGroup could result in a stronger and diversified position for Energy Transfer LP (ET). Thereby, Hatchworks has taken a position.

The Hatchscore is 3.1out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies


What is Energy Transfer LP?

A company that operates in transportation, storage and terminalling for natural gas, crude oil, refined products and liquid natural gas. Energy Transfer LP provides energy-related services in the United States and China.

Big Investors:

  • Harvest Fund Advisors, LLC.
  • Tortoise Capital Advisors, LLC.
  • Morgan Stanley (Strategic Investments).
  • Goldman Sachs & Co. LLC (Private Banking).

Advisors and Bookrunners:

  • Morgan Stanley.
  • Citi.
  • UBS Investment bank.
  • Credit Suisse.

What are the risks?

  • High fluctuations in commodity prices could have some effect on Energy Transfer LP’s business.
  • Interest rate increases could potentially impact Energy Transfer LP’s overall results, cashflow and economic and financial standing.
  • Energy Transfer LP depends upon its ability to continually contract for new sources of natural gas supply.

Competitors:

  • Enbridge (ENB).
  • Magellan Midstream Partners (MMP).
  • Plains All American Pipeline (PAA).

Management team:

  • Kelcy Warren: CEO.
  • Marshall McCrea: CCO.
  • Thomas Long: CFO.

The Hatchwork Team

The forecast figures are based on the data of Marketscreener.com, and not from hatchworks: https://www.marketscreener.com/ENERGY-TRANSFER-LP-40511769/financials/


Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at info@hatchworksvc.com. This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.

Oto Suvari

Written by

Research & Development at Hatchworks & Neuchatel Ltd. Heading up the group’s R&D activities for Hatchworks, SPECTRE (www.spectre.ai) and linked projects.

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