MPLX LP due diligence report.

Oto Suvari
Dec 29, 2019 · 4 min read

Hatchworks has conducted due diligence on MPLX LP, a diversified, large-cap master limited partnership formed by Marathon Petroleum Corporation (MPC) in 2012 that owns and operates midstream energy infrastructure assets and provides fuels distribution services. Headquartered in Findlay, Ohio, United States, MPLX LP is listed on the New York Stock Exchange under the symbol ‘’MPLX’’.

MPLX LP (MPLX) owns two segments:

  1. Crude oil and natural gas gathering systems and pipelines as well as natural gas and natural gas liquids (NGL) processing facilities (40% of EBITDA), with assets primarily in the Northeast and Southwest US.
  2. Logistics and Storage (60% of EBITDA), which has assets in the Midwest, Gulf Coast, and western regions of the US.

Financials — MPLX LP
(Source: Marketscreener.com)

MPLX LP’s current market cap is $27.3B and stock price is around $26.01.

With a predicted net-income growth of 5.2% for 2020E and 2021E, and a net income estimate for 2021E of in excess of $2.8B, this points to a P/E ratio of 9.64x.

The EBITDA forecast is $5.26B for 2020E, indicating an EV/EBITDA ratio of 8.94x.

In terms of profitability, a strong operating margin of 40.7% is predicted for 2020E. This is higher than competitors such as Plains All American (PAA) that has an operating margin of 4.90% for 2020E.

MPLX LP’s (MPLX) is a yielding equity with a high yield of 10.9% for 2020E. In contrast, competitor Kinder Morgan (KMI) offers a lower yield of 5.88% for 2020E.

The latest quarter results show that MPLX LP (MPLX) had a 48% quarter-on-quarter decrease in its earnings and a 48.4% quarter-on-quarter decrease in their operating income. However, they continue to be profitable.

It is worth noting that, the share price made a significant drop of 77% in 2015 from $82.20 to a low of $18.30 in 2016. The reason of this was primarily driven by supply factors, including booming U.S. oil production, receding geopolitical concerns, and shifting OPEC policies.

According to our analysis, MPLX LP shows a strong operating margin with an superior yield of 10.9%. Further, based on loan agreements with key lenders, they are still operating comfortably below their net-debt to ebitda covenants, which is 5.5x. Therefore, Hatchworks has taken a position.

The Hatchscore is 5 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies


What is MPLX LP?

MPLX LP is a diversified, large-cap master limited partnership formed by Marathon Petroleum Corporation (MPC) in 2012 that owns and operates midstream energy infrastructure and provides fuels distribution services. The company also owns crude oil and natural gas gathering systems and pipelines as well as natural gas and natural gas liquids (NGL) processing and fractionation facilities in key U.S. supply basins.

Big Investors:

  • Alerian MLP ETF.
  • Invesco Opp SteelPath MLP Select 40 Fd.
  • Tortoise Capital Advisors, LLC.
  • Goldman Sachs Group, Inc.
  • Alps Advisors Inc.
  • Harvest Fund Advisors, LLC.
  • UBS Group AG.

Advisors and Bookrunners:

  • UBS Investment Bank.
  • BofA Merrill Lynch.

What are the risks?

  • Elliot Asset Management, an activist investor decided to split Marathon Petroleum Corporation (MPC) into three businesses. This could impact MPLX LP business.
  • Strategic initiatives at the parent level, resulting in value destruction for MXLP holders and weaker alignment.
  • While cash flows within the gathering and processing business are underpinned by fee-based agreements, they could be impacted by significant natural gas production declines.
  • Construction of new assets will be subject to regulatory, environmental, political, legal and economic risks that could adversely impact their business, financial condition, results of operations and cash flow.
  • Marathon Petroleum Corporation (MPC) owns a portfolio of assets that qualify to reside within MLPs, and as such, there is the possibility that assets may be “dropped” or acquired by MPC that could impact MPLX LP business.

Competitors:

  • Enterprise Products LP (EPD).
  • Kinder Morgan (KMI).
  • Plains All American (PAA).
  • Energy Transfer LP (ET).
  • Williams Companies (WMB).

Management team:

  • Michael Hennigan: CEO.
  • Pamela K.M. Beall: CFO.
  • Gregory S. Floerke: EVP — Gathering & Processing.
  • John S Swearingen: EVP — Logistics & Storage.

The Hatchwork Team

The forecast figures are based on the data of Marketscreener.com, and not from hatchworks: https://www.marketscreener.com/MPLX-LP-11799319/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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