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Magellan Midstream Partnership reports annual results February 13, 2013

Posted by shaferfinancial in Finance.
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MMP had a very strong year. Operating profits went up to $552m from $523 in 2011. Annual net income went from $413M to $435M for 2012. Diluted net income per partner was $1.92 and increase of $.09. Total volume of product shipped went from 418m barrels to 482m barrels. There were increases in margins along the entire business model that led to the record earnings. The distributable cash flow per partner went up to $2.51 from $2.39 in 2011.

Magellan continues to expand having spent $365m on projects in 2012. That will double in 2013. The Longhorn pipeline is expected to come on line in mid-March building to capacity by the third quarter of 2013. The Double Eagle joint venture is also expected to be on-line in March.

Management expects a 10% increase in distributable cash flow in 2013 followed by another 10% in 2014.

The dividend was increased to $.50 per unit for the February distribution. Annualized, this is 23% higher than the beginning of 2012.

For the calendar year MMP went from $34.44 a unit to $42.29 a 23% increase.
It currently sits at a little over $50 per unit.

My concerns with this investment have increased. First, it has certainly done what I purchased it for, which is to increase it’s dividend. Current yield to cost is 16.5%. The increased valuation has also been remarkable. That is what has got me a little worried. It is performing on all cylinders now, but what of the future. It has a history of transporting refined products coming from outside the US. However, the trend is for less foreign oil and more domestic. So can it change its business model to accommodate this? Will we overbuild storage capacity as has happened in the past? What of the decrease in gasoline usage?

If management is able to increase distributable cash 10% for the next two years, that would allay some of my worries, but it is still bearing being watched closely.

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