Low Gas Prices Boost Global Partners

Igor Greenwald Chief Investment Strategist, MLP Profits

We’ve been on the lookout for a play on cheap gasoline, and we think we’ve found it, suggests Igor Greenwald, energy expert and editor of The Energy Strategist.

Global Partners (GLP), which traces its origins to a one-truck heating oil delivery service started 81 years ago in Boston by the grandparents of the current CEO, has evolved into a nationwide crude and fuel logistics play.

Following a series of acquisitions in recent years, it now supplies a billion gallons of gasoline annually to more than 1,000 gas stations, including 126 it owns and operates and another 415 leased out or managed on commission.

Sometime in the first quarter of next year, Global Partners expects to close its recently announced acquisition of a filling station and convenience store chain from Warren Equities. At that point, the MLP would be supplying gas to more than 1,500 stations from Maryland to Maine and would own roughly half that total.

If that’s all there was to this story we probably wouldn’t be interested, after all, commodity prices and margins are fickle. If crude were to bounce back to $90 next month, some of the recent gains would almost certainly reverse.

But Global Partners is also a crude and fuel wholesale and logistics business funneling sweet North Dakota crude to the east and west coasts. Global Partners loads oil trains at its two North Dakota terminals to fill that gap and its margin on this wholesale operation expanded 32% year-over-year in the third quarter.

It would have been relatively easy to cobble together a logistics empire like this by running up a big debt or by severely diluting one’s limited partners. Instead, Global Partners continues investing from the solid foundation of a strong balance sheet and ample retained profits.

The partnership has just raised its 2014 EBITDA guidance by some 20%. So far this year, Global has produced more than two times as much distributable cash flow as it’s needed to cover its current 6.3% distribution yield. Distributions per unit have increased nearly 9% over the last year.

Global Partners has strong, diversified growth prospects and a reasonable valuation at an enterprise value (market cap plus debt) multiple of less than eight times trailing EBITDA. We’re adding Global Partners to our Growth Portfolio.

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