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Inergy, L.P. Message Board

  • ferdiefor ferdiefor Oct 13, 2011 3:27 PM Flag

    NRGY overpaid for assets

    They paid too much for assets. They were too focused on believing they could prosper from being an industry consolidator. Retail propane is a terrible business compared to pipelines or G&P... too labor and capital intensive... trucks and people to move propane from house location to house location.

    You can say I am a basher or you can come to the reality that its a bad business model for an MLP versus other business segments in the MLP model.

    The distribution is not safe and the yield is the "tell".

    Good luck but while you stew here you miss investing in 3 great G&P MLPs that are growing distributions 8-15%/year.

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    • Up 10% since your bash.Please bash some more.

    • OOPS! Right you are--got them reversed.

      Ferdie usually makes good observations, but has not amplified his original comments. Which assets did NRGY pay too much for, Ferdie?

    • While I agree in general (and I personally am invested in the G&Ps and not the propane space myself), there is another point of view.

      Assume NRGY can just maintain its current distribution, even if it doesn't increase it.
      You can get 12% yield on your cost basis.
      OK, your G&Ps are growing distributions at 8-15% but starting at a much lower level (albeit still attractive).

      Consider a $ investment at this time in either NRGY or your G&Ps. In terms of total accumulated payouts it may be a decade or more until your G&Ps catch up with NRGY. Even after the yield on cost basis for the G&Ps catches up with the 12% for NRGY it will still be years more until they catch up with all the extra you could have received from NRGY in the meantime.

      The key is whether NRGY at least maintains the current distribution. If it has to cut that analysis breaks down.

      Bottom line: if you expect NRGY to at least maintain the current distribution it would be a very profitable investment at these levels, even though the G&P MLPs you suggest are clearly better businesses.

 

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