Most stocks have skittered back and forth across the countryside like bewildered wombats in the past three weeks, but one sector has managed to remain fairly steady: the energy pipeline providers.
I know, I know. The idea of investing in natural gas and petroleum pipelines is too exciting for words. But just give me a moment here because I do think you’ll like this one company: Global Partners LP (GLP), a wholesale and commercial distributor of petroleum and natural gas in the northeastern United States.
GLP transports all kinds of fuel — gasoline, home heating oil, kerosene and diesel — to gas stations, wholesale retailers and industrial customers.
It’s been in operation since 1933 when Abraham Slifka drove a single truck around distributing fuel to customers. Around 54% of the firm is owned by Kayne Anderson, a Los Angeles-based investment firm.
The company says it controls one of the largest networks of refined petroleum in the Northeast after recently acquiring two terminals in New York and Vermont from ExxonMobil (XOM), adding 2.7 million barrels in capacity. All told, GLP now has about 9 million barrels of storage capacity.
Like Williams Pipeline Partners (WMZ), discussed last week, GLP is a master limited partnership.
In exchange for making mandatory cash distributions every quarter, the firm avoids costly corporate taxes. Also like WMZ, Global Partners boast an impressive yield, currently about 10%. That works out to about 48 cents per unit, or $1.95 a year. GLP just has to make sure it has enough liquidity on hand to make those quarterly payments, and it has plenty: $3 million cash plus $650 million in revolving credit from a 13-bank partnership, plus an additional $85 million credit for acquisitions.
The stock has been on a tear of late, as it is up 15% since June 1 and has been trading at double its usual volume. There’s a fundamental reason behind the advance: GLP had a great first quarter, with net income up 120% year over year. Before taxes, GLP made $27.4 million, compared to $18.5 million in the first quarter of 2008. Distributable cash flow for the quarter reached a record $22 million, almost double 2008’s first quarter of $11.8 million.
Because of lower prices on natural gas and petroleum, sales were actually down from the previous first quarter. But GLP sold more high-margin natural gas this time due to the northeast’s wicked winter spell.
And with gasoline prices continuing to rise, companies with established market niches like GLP should continue to rebound from last year’s lows. Management also credits its efforts to diversify its asset base, as evidenced by those recent acquisitions of those two petroleum terminals.
Despite substantial revenue of about $8 billion, GLP has a relatively small market cap of $251 million because profit margins are minuscule at 0.4%. With a price/earnings multiple of 8, a fat yield and solid growth prospects in a reliable niche, GLP is a good buy.
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