What is Wrong with NGL Energy???

The best answer we have to the above question is – nothing, except NGL is a master limited partnership (MLP) and sometimes you get painted with the same brush as those you ‘hang’ out with.  At this time we can find no reason for these shares to be trading at this level–with the current yield now just over 10%.  Certainly there are price pressures on the company as the price of crude and natural gas falls motivates upstream producers to renegotiate contract terms with NGL, but one would have thought these items were ‘baked in’ the share price already.

Recall that we sniffed out NGL Energy (ticker:NGL) in late April and in early May we added to our position. Our average cost in the shares is around $28.50.  Our feeling then was that the company was undervalued and being down from a 52 week high in the mid 40’s was likely a great buy.  The shares then rose slowly, but surely, to reach almost $34/share by June 19th.  Since that time the shares have been on a steady downtrend until today reaching a low of $24.83/share.  These shares have single handedly set our portfolio back .4%. Ouch!!

Once again we will review NGL Energy. NGL is a midstream MLP.  They own crude oil pipelines, storage, barges, rail cars and trucks. Additionally they purchase and distribute propane, butane and other natural gas liquids and they own distribution terminals for these items all through the midwest. They also have refined product terminals from Texas all the way up the east coast to Connecticut.  Lastly they treat, recycle and dispose of water from fracking operations.  With the exception of the water treatment business, which could obviously be seriously impaired with the lack of fracking currently occurring, these are strong businesses. We do note that margins are razor thin in these businesses.

Now understand that NGL is no tiny MLP–they had $16 billion in revenue last year. At current price levels NGL has a market cap of $2.4 billion.  Seems like a buyout would be in order (we are not suggesting this will happen, but a quick glance would seem to make this a possibility).

NGL will release earnings before the market opens on Monday, August 10 (next Monday) and at that time we will see just how business is progressing.