MLP Correction Watch

Transcription

1 Equity Research: Master Limited Partnerships (MLPs) June 14, 2013 MLP Industry Update Hinds Howard Senior Analyst MLP Correction Watch Statistics and Commentary 2013 s version of the MLP correction that occurs at least annually (and usually arrives soon after most MLPs make a quarterly distribution payment) has finally arrived. The week that ended May saw the Alerian MLP Index decline 4.3%, its biggest one week decline since last May (in the middle of another correction). MLPs rebounded the next week (+1.4%), but have dropped again this week (-1.2% so far). In total, since making its fresh high on May 22, the MLP Index has declined 5.2%. In this report, we review individual MLP performance since May 22, as well as a breakdown of performance by MLP sub-sector and by several other categorizations. We learned a few things upon review of recent price action: Gathering & Processing, Natural Gas Pipeline and Other MLPs performed much better than liquids pipeline, large cap diversified and general partner holdco s Smaller MLPs well outperformed larger MLPs. New, small MLPs that are not in any indexes and have attracted less institutional capital than other MLPs outperformed the largest MLPs MLPs that underperformed prior to the correction, underperformed in the correction The fastest growing MLPs (that tend to have lower yields) performed worse on average than other MLPs Past MLP corrections have generally been brief and transient, followed by sustained price increases for MLPs. We recommend using this correction to upgrade your MLP portfolio. If valuations have seemed too high among the fastest growing MLPs, corrections can provide an opportunity to trade up from losing positions into higher quality MLPs than you could afford prior to the correction. Midstream MLPs (particularly the larger ones that have sold off disproportionately) with visible growth through contracted growth projects or from drop-down acquisitions should outperform as MLPs emerge from the recent little correction. As such, we upgrade our view on the sector of midstream MLPs to Outperform, to match our Outperform view of the upstream MLP sector. Guzman & Company does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR ANALYST CERTIFICATION AND OTHER IMPORTANT DISCLOSURES, REFER TO THE DISCLOSURE SECTION AT THE END OF THIS REPORT.

2 MLP Recent Performance MLPs have performed well so far this year and year over year, but have not performed well the last 3 weeks since peaking May 22. The Alerian MLP Index has produced total returns of 18.1% year to date, 28.6% year over year, and - 5.5% since May 22. MLPs were due for a correction, and we view the current correction as nothing more than the typical MLP correction that we get every year (and sometimes several times in a year). MLPs sector fundamentals remain solid on average. Upstream activity is driving capital expenditures for midstream MLPs. Midstream MLPs are building processing plants, laying gathering pipeline, building NGL export terminals, repurposing natural gas pipelines to solve NGL and crude takeaway issues, buying and building crude oil terminals, and buying other MLPs. Natural gas prices are 65% higher than last year. Also, on average, MLPs should grow distributions at faster rates than in any year since before the financial crisis. MLPs remain in the midst of a secular growth story backed by developments in drilling technology, and continue to offer attractive yields relative to alternatives. Balancing the positives are persistently low NGL prices (particularly ethane), rising interest rates from a slowdown in Fed support (still less than 50 bps increase since YE 2012 for 10-year Treasury rate, though), and a general sense that the positive fund flows into MLPs may slow after MLPs have performed so well in 2013 and if rates continue to rise. Below are charts that show the MLP Index value year to date and year over year. Alerian MLP Index Value: YTD /31/12 1/31/13 2/28/13 3/31/13 4/30/13 5/31/ Alerian MLP Index Value: Last 12 Months

3 Learning from Past Corrections In 2010 and 2011, the Alerian MLP Index had 8 total corrections (which we classify as a 5% peak to trough decline), 4 in each year was significantly less volatile and had only two corrections has had only one correction. Notable in the chart below: MLP corrections averaged less than 30 days, and are clustered around seasonal distribution payment periods. Also of note, the rate on the 10-YR UST has averaged an increase during upswings and a decrease for corrections, which is counter to the common theory that MLPs trade down on interest rate increases. MLP Corrections & Recoveries Date AMZ Value Change 10 Yr Treasury Rate Change Start End Days Start End (%) Start End (bps) 10/28/09 1/20/ % 3.41% 3.66% 25 1/20/10 2/5/ (8.0%) 3.66% 3.55% (11) 2/5/10 4/26/ % 3.55% 3.82% 27 4/26/10 5/6/ (11.4%) 3.82% 3.40% (42) 5/6/10 5/12/ % 3.40% 3.57% 17 5/12/10 5/20/ (9.4%) 3.57% 3.26% (30) 5/20/10 8/5/ % 3.26% 2.92% (35) 8/5/10 8/12/ (5.3%) 2.92% 2.74% (18) 8/12/10 2/28/ % 2.74% 3.41% 68 2/28/11 3/15/ (6.0%) 3.41% 3.32% (9) 3/15/11 4/28/ % 3.32% 3.31% (1) 4/28/11 5/17/ (10.0%) 3.31% 3.12% (19) 5/17/11 7/7/ % 3.12% 3.15% 3 7/7/11 8/8/ (16.1%) 3.15% 2.34% (81) 8/8/11 8/15/ % 2.34% 2.29% (5) 8/15/11 10/4/ (7.6%) 2.29% 1.78% (50) 10/4/11 2/24/ % 1.78% 1.98% 20 2/24/12 6/4/ (14.5%) 1.98% 1.53% (45) 6/4/12 10/17/ % 1.53% 1.81% 28 10/17/12 11/15/ (10.8%) 1.81% 1.59% (22) 11/15/12 5/22/ % 1.59% 2.03% 44 5/22/13 6/5/ (6.9%) 2.03% 2.10% 7 Average Ups % 17 Average Down 27 (9.6%) (29) Source: Alerian.com Right now, we are either on our way out of a correction or in the middle of it. The MLP index closed at on June 5 th, and has threatened to drop to that level again this week. This latest correction came slightly later than the typical seasonal, distribution-related selloff, and if it stopped now it would be the smallest % correction since early After the very large rally between corrections from November to May (biggest rally on the chart), it would not surprise us to see this correction continue lower or last longer than other corrections. But given the unusual timing of this correction, selling may be balanced by buying on anticipation of the next distribution cycle in August. Another takeaway from the chart: how resilient MLPs have been since We have no reason to believe this latest correction is any different. Investors may fear an interest rate rise more this time around than they have in the past, but from a sub-2.0% interest rate environment, we believe rates have room to rise before it begins to significantly impact fund flows into MLPs. 3

4 Individual MLPs Since 5/22 The charts that follow show how each MLP has traded since 5/22, with upstream MLPs, GPs and variable distribution MLPs on this page and the rest of the MLPs on the next. Positive MLPs have mostly had positive news or research coverage released during the interim. PSE NSLP EROC LRE MEMP QRE LGCY VNR BBEP ARP MCEP LINE EVEP ATLS Upstream MLP Returns Since 5/22 (0.9%) (1.3%) (2.7%) (5.3%) (5.8%) (6.1%) (6.4%) (8.9%) (9.0%) GP Holdco Returns Since 5/22 0.7% 0.0% 3.8% (20%) (15%) (10%) (5%) 0% 5% 10% 0.9% TRGP XTXI WGP ETE (1.7%) (3.0%) (3.5%) (3.9%) AHGP KMI (6.3%) (7.4%) NSH (15.4%) (20%) (15%) (10%) (5%) 0% 5% Var. Dist. MLP Returns Since 5/22 EMES 16.2% ALDW 4.1% NTI 1.3% CVRR 1.2% DMLP (3.1%) UAN (3.3%) TNH (4.5%) PDH (9.5%) RNF (11.0%) (20%) (10%) 0% 10% 20% 4

5 HCLP SEP SMLP SXE AMID FGP SXCP USAC Crude Oil GLP CPLP PVR CLMT SXL SDLP BKEP GSJK STON ACMP RNO HEP NGL WES LGP APU DPM NKA DKL MPLX SGU NMM TOO EXLP EEP APL BPL RGP NRP CQP NGLS TCP SPH TEP MWE PNG EPB MMP EPD MLP Index CMLP XTEX GMLP NRGM NRGY ETP TLP GEL BWP EQM KMP OKS TGP WPZ KNOP PAA RRMS MMLP BIP SUSP ARLP Natural Gas OILT NS TLLP MLP Returns Since 5/22 (0.1%) (0.2%) (0.2%) (0.3%) (0.7%) (0.8%) (1.1%) (1.3%) (1.3%) (1.4%) (1.4%) (1.4%) (1.5%) (1.9%) (2.3%) (2.4%) (2.8%) (2.8%) (2.9%) (3.1%) (3.3%) (3.3%) (3.4%) (3.5%) (3.5%) (3.7%) (3.7%) (3.8%) (4.1%) (4.2%) (4.8%) (4.9%) (5.0%) (5.1%) (5.2%) (5.2%) (5.3%) (5.4%) (5.4%) (5.6%) (5.6%) (5.8%) (5.8%) (5.9%) (6.0%) (6.3%) (6.3%) (6.4%) (6.5%) (7.0%) (7.2%) (7.2%) (7.3%) (8.6%) (8.7%) (8.9%) (9.3%) (9.8%) (10.4%) (10.9%) (12.6%) 6.9% 5.9% 4.7% 3.7% 3.5% 2.5% 2.0% 1.8% 0.4% 0.0% 11.5% 10.2% 14.6% (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% 5

6 Performance By Asset Type: Other MLPs (aided by strength from recent IPOs EMES and HCLP) are the only group that s been up since the peak. Gathering & processing MLPs have held up on average. Large cap diversified and refined products / crude MLPs have been the weakest performers. 1% 0% (1%) (2%) (3%) (4%) (5%) (6%) (7%) 0.4% MLP Return Since 5/22: By Sub-Sector (0.9%) (2.3%) (3.0%) (3.9%) (4.6%) (4.7%) (5.0%) (5.7%) (6.2%) MLP Performance by Market Cap: Below is a chart breaking down 93 MLPs we track (includes variable distribution MLPs, does not include GP holding companies). The largest MLPs had the biggest declines since the peak, led by a 9.0% drop from LINE. The smallest MLPs outperformed, largely because of gains from recent IPOs EMES (+16.2%), HCLP (+14.6%), and USAC (+3.5%). 2% 1% 0% (1%) (2%) (3%) (4%) (5%) (6%) 1.2% MLP Return Since 5/22: By Market Cap $0-$500mm $500mm - $1.5bn (3.4%) (3.4%) $1.5bn - $3.0bn (2.5%) $3.0bn - $6.0bn (4.9%) $6bn+ 6

7 MLP Performance by YTD Returns to 5/22: This next chart shows the average returns since 5/22, broken down by 5 categories of total returns up to the peak. The idea was to see if the general concept of gravity might apply to MLP corrections (i.e. the higher they go, the further they fall). The answer is inconclusive. The best performing group of MLPs up to the point of peak has been down 3.1% since the peak. The best performers since the peak were in the range of 15% to 35% returns at the peak. The worst performing MLPs have seen their relative underperformance accelerate since 5/ % MLP Returns Since 5/22: By YTD Performance (from 12/31/12 5/22/13) Performance Since 5/22 (1.0%) (2.0%) (3.0%) (4.0%) (5.0%) (6.0%) (5.7%) (3.3%) (2.0%) (2.1%) (3.1%) (7.0%) <5%+ 5%-15% 15%-25% 25%-35% 35%+ YTD Performance Prior to Peak MLP Performance by LTM Distribution Growth: In this chart, we highlighted 5 buckets of last twelve months per unit distribution growth. The worst performing two buckets were the fastest growers. Those faster growing MLPs trade generally at lower yields than other MLPs, most below 3.5%, which may not seem as attractive to investors if growth is threatened by whatever is causing the MLP correction. The no-growth MLPs fared well, because it includes recent IPOs that have 0% distribution growth. 0.0% MLP Returns Since 5/22: By Distribution Growth (1.0%) Performance Since 5/22 (2.0%) (3.0%) (4.0%) (5.0%) (6.0%) (7.0%) (2.1%) (1.7%) (3.5%) (6.3%) (3.9%) 0% or less 0%-5% 5% - 10% 10% - 15% 15%+ LTM Distribution Growth 7

8 Guzman & Company Research Coverage Universe Atlas Resource Partners (Outperform $29.00 price target, $22.48 current price) Overview: Atlas Resource Partners, L.P. (ARP) is a Delaware limited partnership based in Pittsburgh, PA that develops and produces natural gas and oil from its properties in across several geographic areas across the United States. ARP also sponsors and manages tax-advantaged drilling / development investment partnerships, in which it co-invests and uses to finance a portion of its natural gas and oil production activities. ARP was formed in 2011 as a wholly-owned subsidiary of Atlas Energy, L.P. (NYSE: ATLS), a publicly traded MLP that owns ARP s GP and the GP of midstream MLP, Atlas Pipeline Partners (NYSE: APL). ARP was spun out of ATLS when ATLS distributed 5.24mm common units (19.6% L.P. interest at that time) to its unitholders in a transaction that was culminated on March 14, 2012 when ARP s units began to trade publicly. Valuation: To determine our $28.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied an 8.5x 2014E DCF/unit multiple, 7.5x 2014E EBITDA multiple, applied a 10% discount rate and 9.5% exit yield to our distribution discount model. Risks: ARP is subject to commodity price risk, capital markets risk (ARP may not be able to raise equity at attractive rates when it needs equity), risk of replacing declining production, acquisition integration risk (given that most of ARP s growth will come from acquisitions), interest rate risk, and MLP tax risk. Eagle Rock Energy Partners (Neutral $10.00 price target, $8.71 current price) Overview: Eagle Rock Energy Partners, L.P. (EROC) is a Houston-based master limited partnership (MLP) that operates in the businesses of (1) gathering, compressing, treating, processing, transporting, marketing and trading of natural gas; fractionating, transporting and marketing of NGLs; and crude oil logistics, collectively called "Midstream Business", and (2) developing and producing interests in oil and natural gas property interests, EROC s "Upstream Business." EROC went public in 2007 and was recapitalized in 2010 (following its financial distress and 2009 distribution cut) to remove its incentive distribution rights (IDRs) previously owned by its sponsor, Natural Gas Partners (NGP). We include EROC in our upstream MLP coverage group, as the majority of its EBITDA is still derived from upstream activities. Valuation: To determine our $10.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied an 11.0x DCF/unit multiple, a 9.5x EBITDA multiple, applied a 9.5% discount rate and 9.5% exit yield to our distribution discount model. Risks: EROC is subject to commodity price risk, capital markets risk (EROC may not be able to raise equity at attractive rates when it needs equity), Basin concentration risk (81% of gross margin from Texas Panhandle), risk of replacing declining production, acquisition integration risk, interest rate risk, and MLP tax risk. Memorial Production Partners (Outperform - $21.00 price target, $19.04 current price) Overview: Memorial Production Partners, LP (MEMP) is a Delaware limited partnership based in Houston, TX that was formed in 2011 to own, operate and acquire oil and natural gas properties in North America. MEMP s properties are located in South Texas, East Texas / North Louisiana and California. MEMP s general partner is owned by a subsidiary of large private equity firm Natural Gas Partners (NGP), Memorial Resource Development (MRD). MEMP went public in December 2011 and since then has completed 5 acquisitions for total combined purchase prices of approximately $446mm. As of 12/31/12, MEMP had bcfe of proved reserves (62% natural gas, 59% proved developed), up 88% from 2011 proved reserves of bcfe, largely as a result of the aforementioned acquisitions. Valuation: To determine our $21.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied a 9.0x DCF/unit multiple, an 8.0x EBITDA multiple, applied an 11% discount rate and 10.5% exit yield to our distribution discount model. 8

9 Risks: MEMP is subject to commodity price risk, capital markets risk (MEMP may not be able to raise equity at attractive rates when it needs equity), risk of replacing declining production, acquisition integration risk, interest rate risk, and MLP tax risk. QR Energy (Outperform $21.00 price target, $16.59 current price) Overview: QR Energy, LP (QRE) is a Delaware limited partnership based in Houston, TX that was formed in 2010 to acquire, own and exploit producing oil and natural gas properties in North America. QRE s proved reserves are located in the Permian Basin and Ark-La-Tex areas primarily, with smaller positions in the Mid-Continent and Gulf Coast areas. QRE is sponsored by private equity fund Quantum Resources Fund (QRF). The fund holds a 29.3% limited partner interest through preferred units and subordinated units. QRE went public in December 2010 and since then has completed 4 acquisitions for total combined purchase prices of approximately $1.2bn. Valuation: To determine our $21.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied a 9.5x DCF/unit multiple, an 8.5x EBITDA multiple, applied an 11% discount rate and 10.0% exit yield to our distribution discount model. Risks: QRE is subject to commodity price risk, capital markets risk (QRE may not be able to raise equity at attractive rates when it needs equity), risk of replacing declining production, acquisition integration risk, interest rate risk, and MLP tax risk. Vanguard Natural Resources (Outperform $31.00 price target, $27.64 current price) Overview: Vanguard Natural Resources, LLC (VNR) is a publicly-traded upstream LLC focused on the acquisition, production and development of oil and natural gas properties. VNR does not have a general partner or any incentive distribution rights. VNR went public in October 2007 (the 5 th oldest upstream MLP trading) and has grown its asset base substantially while expanding into new geographic regions via 17 strategic acquisitions for approximately $2.5bn. VNR pays a monthly distribution. VNR's assets consist primarily of producing and non-producing oil and natural gas reserves in the Permian Basin in West Texas and New Mexico, the Big Horn Basin in Wyoming and Montana, the Arkoma Basin in Arkansas and Oklahoma, the Piceance Basin in Colorado, the Powder River and Wind River Basins in Wyoming, the Williston Basin in North Dakota and Montana, Mississippi and South Texas. As of 12/31/12, VNR held proved reserves of mmboe (60% natural gas, 74% proved developed). Valuation: To determine our $31.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied a 10.5x DCF/unit multiple, a 9.5x EBITDA multiple, applied a 10% discount rate and 8.5% exit yield to our distribution discount model. Risks: VNR is subject to commodity price risk, capital markets risk (VNR may not be able to raise equity at attractive rates when it needs equity), risk of replacing declining production, acquisition integration risk, interest rate risk, and MLP tax risk. Inergy Midstream (Outperform $28.00 price target, $22.38 current price) Overview: Inergy Midstream, L.P. (NRGM) is an MLP formed by Inergy, L.P. (NRGY) to own and develop midstream assets, with an initial focus on fee-based natural gas and natural gas liquids (NGL) storage and transportation assets. NRGM currently owns and operates 4 natural gas storage facilities in the northeast with aggregate working gas storage of approximately 41.0 bcf, natural gas pipeline facilities with 905 mmcf/d of transportation capacity and a 1.5mm barrel NGL storage facility in western New York. NRGM also owns and operates US Salt, a solution mined salt production facility located on the shores of Seneca Lake in western New York. In December 2012, NRGM acquired the COLT crude oil rail terminal, storage, and pipeline facilities with 720,000 barrels of crude oil storage in the heart of the Bakken and Three Forks shale areas from Rangeland Energy, LLC for $425mm. Valuation: To determine our $27.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied a 15.0x DCF/unit multiple, a 12.5x EBITDA multiple, applied a 8.5% discount rate and 7.0% exit yield to our distribution discount model. The result in the case of NRGM is a $27.00 per unit target price. 9

10 Risks: NRGM is subject to re-contracting risks for its natural gas storage and transportation contracts, risk of cost overruns on its growth projects, risks of competition, capital markets risk, interest rate risk and MLP tax risk. Western Gas Partners (Outperform $68.00 price target, $60.90 current price) Overview: Western Gas Partners, LP (WES) is an MLP created in 2008 by Anadarko Petroleum (APC), which still controls WES even after the IPO of WES s general partner holding company in December WES owns, operates, builds and acquires midstream assets that gather, treat, process and transport primarily natural gas. WES also transports crude oil and fractionates and transports natural gas liquids (NGLs). WES has assets located in East, West and South Texas, the Rocky Mountains, north-central Pennsylvania, and the Mid-Continent areas. WES derives 98% of its gross margin from activities governed by long-term, fee-based contracts and fixed-price agreements. WES has grown its distribution at an annual rate of 16.7% over the last 3 years, with the bulk of that growth driven by drop-down acquisitions from APC. Valuation: To determine our $68.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied a 22.0x DCF/unit multiple, a 17.5x EBITDA multiple, applied a 9.0% discount rate and 4.0% exit yield to our distribution discount model. Risks: WES is subject to customer concentration risk, capital markets risk, volume risk and interest rate risk. Crosstex Energy (Outperform - $23.00 price target, $20.01 current price) Overview: Crosstex Energy, L.P. (XTEX) is a Dallas-based master limited partnership (MLP) that went public in December 2002, primarily focused on providing midstream energy services, including gathering, processing, transmission and marketing, to producers of natural gas, NGLs and crude oil. XTEX has operations across Texas (Permian Basin, East Texas, and Eagle Ford Shale) and Louisiana, and has operations in Ohio and West Virginia s Marcellus and Utica Shales. XTEX s G.P. is owned by a publiclytraded general partner holding company, Crosstex Energy, Inc. (XTXI), which went public in January Valuation: To determine our $23.00/unit target price, we take the average of two numbers: (1) the average of the comparable trading methods (Price/DCF per unit, EV/EBITDA), and (2) our distribution discount model methodology. We applied a 14.0x DCF/unit multiple, a 13.0x EBITDA multiple, applied a 9.5% discount rate to our distribution discount model. Risks: XTEX is subject to commodity price risk, competition from other MLPs, risk of hurricanes, capital markets risk, interest rate risk, and MLP tax risk. 10

11 APPENDIX: ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES I, Hinds Howard, certify that the views expressed in this research report accurately reflect my personal views about each issuer and security referenced. This report was prepared in an independent manner. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or views(s) expressed by me in this report. Coverage Universe Hinds Howard: Atlas Resource Partners, L.P. (ARP), Crosstex Energy, L.P. (XTEX), Eagle Rock Energy Partners, L.P. (EROC), Inergy Midstream, L.P. (NRGM), Memorial Production Partners, L.P. (MEMP), QR Energy, LP (QRE), Vanguard Natural Resources, LLC (VNR). Description of Guzman & Company Price Targets: Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period. Description of Guzman & Company Analyst Ratings: Outperform (O): Neutral (N): Underperform (U): Not Rated (NR): Stock appears attractive relative to its peers, and we believe the stock s total return will surpass that of the U.S. equity market over the next 12 months. Stock appears fairly valued relative to its peers, and we believe the stock s total return will be in line with that of the U.S. equity market over the next 12 months. Stock appears overvalued relative to its peers, and we believe the stock s total return will be below that of the U.S. equity market over the next 12 months. Stock currently not covered by the analyst. Description of Guzman & Company Risk Ratings: Opinions include a volatility risk rating, an investment rating, which is an indication of potential price fluctuation, including Low (L), Medium (M) and High (H), reflecting levels of historical or expected volatility. Description of Guzman & Company Analyst Industry Ratings: Outperform (O): Sector expected to produce total returns over the next 12 months that will exceed that of S&P 500. Neutral (N): Sector expected to produce total returns over the next 12 months in line with that of the S&P 500. Underperform (U): Sector expected to produce total returns over the next 12 months that is less than that of S&P 500. Distribution of Investment Ratings: As of April 15, 2013, Guzman & Company covered 7 companies, with 86% rated Outperform (Buy), 14% Neutral (Hold), and 0% Underperform (Sell). Within these rating categories, 17% of Outperform (Buy)-rated, 0% of Neutral (Hold)-rated, and 0% of Underperform (Sell)-rated companies have compensated Guzman & Company for investment banking services in the prior 12 months. About Guzman & Company: Guzman & Company, founded in 1987, is full-service institutional brokerage and investment banking firm. Guzman & Company is committed to serving our clients' interests first and foremost and brings together our extensive expertise in capital markets, liquidity sourcing, sophisticated analytics and execution management together with an entrepreneurial approach, to provide a unique set of offerings to a demanding, competitive marketplace. Relationships with more than 500 institutional investors from value managers and plan sponsors to hard-to-reach industry specialized investors gives Guzman & Company unrivaled distribution. Additional information on recommended securities is available on request. 11