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  • marklibera marklibera Oct 19, 2011 10:12 AM Flag

    What is NRGY worth?

    The question is now that Amerigas has put a value on a large propane asset sale, using that same metric (10.5 times EBITDA) how are NRGY's midstream assets valued versus its competitors. A storage public company, PNG, is valued at 23 times EBITDA. Not sure if NRGY's midstream assets are comparable to PNG.

    NRGY has already planned to spinoff the midstream assets, no doubt because they figured out that the market was not valuing these assets at the same rate as the market valued other purer storage plays like PNG. A potential sale of the propane assets to another company for cash probably has tax disadvantages, so instead of contributing the propane assets to some other company's mlp in exchange for units, NRGY decided to keep control but separate them out so that the midstream assets could be better priced by the market.

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    • The Amerigas-Energy Transfer deal is huge for Inergy in that it puts a value on an integrated platform.

      I believe that Inergy may end up contributing its propane assets to Suburban (SPH), which would allow SPH to bulk up and rival the bulked up Amerigas. SPH has a pristine balance sheet, no IDRs, so it would be perfect for SPH and would allow NRGY to focus on midstream.

      One thing is certain, NRGY has now become cheap. The fear mongering by beefstu is just that, fear mongering. NRGY certainly deserves much of the punishment they have received (i.e. price decline) as they made a series of poor decisions (hefty GP buyout followed by a transformational transaction in Tres Palacios), but the rumors of their demise are misleading.

      All of that being said, NRGY will likely be able to maintain the distribution at its current level, and at worst, a cut of 20%.

      A cut of 20% brings it down to $2.24/unit and with a 8% yield, you have a price of $28.20.

    • rrb and mark,
      Thank you for your intelligent responses. I am bottom fishing here because I see the consolidation of the propane business accelerating with the APU/ETP deal and I think the propane business itself is or has bottomed.

      Despite all the fear-mongering, people who use propane can't switch to gas unless the local utility builds a line to their home or they change to electric, both of which are very expensive propositions. I have several family members who burn propane--none of them are even considering switching. I think cut-backs because of the recession have about run their course and increased nat gas production should bring propane prices down, benefitting re-sellers like NRGY.

      I can see real benefits to NRGY from the upcoming IPO, especially if their longer term objective is similar to that of ETP. A stock deal to sell their propane business to SPH after the IPO would put them in the same position today, with the bonus of the IDRs eventually coming in from the storage MLP along with distributions from SPH. And I doubt there would be tax consequences to a properly structured stock deal.

      All of which gets me back to wondering what NRGY's propane business would be worth to SPH or another buyer in an all stock deal after the storage IPO is done. What do you think?

      (I owned NRGP, got bought out then sold the NRGY I received in January. Now own NRGY calls, thinking of adding here.)

      • 1 Reply to lner2512
      • I would prefer the midstream biz not be IPO'd if they divest propane. NRGY just bought out the GP, so that would be a step backwards in my opinion.

        Sherman would be making a third HUGE mistake to divest propane and simultaneously IPO the Marcellus midstream. Simplicity is the key. The MLPs without IDRs are easier to value, serve only 1 master and have only 1 goal, to preserve and grow the distribution.

        If propane is not divested, then I would agree with IPO'ing the midstream, but only if all midstream eventually ends up in the MLP, including Tres Palacios.