Perspective On The Gold Miners; Management
Michael Mauboussin: Here’s what active managers can do
The above charts came from this article. I would ignore the conclusions but focus on the historical perspective.
Good Manangement – Enterprise Product Partners August 2016 Presentation
Note the information they give investors. How management communicates is important. Do they provide sufficient detail for you to assess their capital allocation skills and operational performance. Note page 5.
Key Investment Considerations
- One of the largest integrated midstream energy companies
- Integrated system enables EPD to reduce impact of cyclical commodity swings
- Large supply aggregator and access to domestic and international markets provides market optionality to producers and consumers
- History of successful execution of growth projects and M&A
- ?$35 billion of organic growth projects and $26 billion of major acquisitions since IPO in 1998
- ?$5.6 billion of capital growth projects under construction
- New projects under development
- Low cost of capital; financial flexibility
- One of the highest credit ratings among MLPs: Baa1 / BBB+
- Simplified structure with no GP IDRs for long?term durability and flexibility
- Margin of safety with average distribution coverage of ?1.4x and ?$5.3 billion of retained DCF since 1Q 2011 (excludes non?recurring items)
- Consistent distribution growth: 48 consecutive quarters
- Financially strong, supportive GP committed for the long?term
Significant Insider Ownership
- Supportive GP with significant ownership
- EPCO and affiliates own 33% of LP units
- Facilitated elimination of IDRs in a non?taxable transaction through waiver of ?$322 million in distributions from 2011 through 2015
- Supported EPD’s capital investments and financial flexibility by purchasing more than $800 million in EPD units since February 2010
How Much Does MLP Management Cost?
Are You Getting Your Money’s Worth?
- Traditionally and most appropriately, we evaluate GP IDRs as a component of an MLP’s cost of capital
- This alternative analysis evaluates IDRs as a management cost similar to how an institutional investor would evaluate carried interest cost for a hedge fund/private equity investment as a % return (i.e. distributable cash flow) and AUM (i.e. enterprise value)
- Management cost defined as the sum of GP IDRs plus total compensation of the 5 named executive officers per SEC filings
Successful Execution Throughout Cycles
Increased Cash Distributions for 48 Consecutive Quarters
See the full presentation below.