Rattler Midstream LP

RTLR Details

Rattler Midstream LP (NASDAQ: RTLR) is a partnership that owns, operates, develops, and acquires midstream infrastructure assets in the Permian basin's Midland and Delaware sub-basins, one of the world's most prolific oil-producing regions. It has long-term, fixed-fee contracts with its parent company, Diamondback Energy, Inc., to offer crude oil, natural gas, and water-related midstream services (water supply, transportation, and generated water collection and disposal). It derives substantially all of its revenue from its commercial agreements with its parent company.

Cash Distribution: RTLR announced a cash dividend of USD 0.25 per common share for Q2FY21 on August 02, 2021, payable on August 23, 2021, to shareholders of record on August 16, 2021.

H1FY21 Results: The company reported a slight decline of 8.34% in total revenues to USD 199.94 million during H1FY21 (ended June 30, 2021) compared to USD 218.13 million during H1FY20, owing to a reduction in sourced water, produced water and oil volumes due to Diamondback's lower level of drilling and winter storms in the Permian basin in February 2021. However, its net income (attributable to its shareholders) increased to USD 18.46 million during H1FY21 vs. USD 15.85 million reported in H1FY20. As of June 30, 2021, its cash and cash equivalents were USD 17.55 million, with a total debt of USD 496.95 million.

Key Risks: The Permian basin in Texas is host to RTLR's midstream assets. As a result, it is vulnerable to various consequences, including the influence of supply and demand variables, delays in sound output owing to government restrictions, water shortages, weather-related circumstances (recent winter storms in the Permian basin) and freight delays. These issues might have a detrimental influence on the company's operations and finances.

Outlook: RTLR indicated in its Q2FY21 press release that it anticipates its FY21 net income to be in the region of USD 140 – 180 million, with adjusted EBITDA of USD 280 – 320 million. It also expects its operational midstream capex to range from USD 30 – 50 million and distribution per unit of USD 0.90.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

RTLR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: RTLR stock price has surged 86.81% in the past twelve months and is currently leaning towards the higher band of the 52-week range of USD 5.53 to USD 12.90. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 61.18. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 11.32. Considering the significant uptick in the stock price and other technical indicators, we believe the decent business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 12.18, up 1.0% as of October 11, 2021, 10:16 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.