Although I would agree that propane consumption has been in a consistent declining pattern over the last decade, I suspect that trend line will change for the positive. One example is FGP, which has established propane autogas for the metro schoolbus system in Mesa, AZ. This alone will consume about 1 million additional gallons per year. Increasingly, fleets are turning to propane autogas, especially local state governments, not to mention environmental laws on the West coast. Whats more, state and local municipalities are increasingly using propane as a diesel substitute for machinery such as mowing equipment.
Long: 4000shs FGP: 1000 Shs APU.
NRGY is a turnaround play and probably a good one for the contrarian investor with patience.
I am not familiar with the other propane MLP so I cannot comment on them. I like NRGY at this price because of their midstream assets. I expect the distribution to be flat for the next year or two as the partnership digests the acquisition of its GP and the large natural gas storage facility in Texas. As NRGY's DCF increases to cover their distribution, I expect the yield to approach more normal levels of 8% or so, which implies significant price appreciation. In the meantime I get 11+% to wait. This is not without risk but seems to be a reasonable speculative piece of a portfolio.
Yes, I agree 100%. Inergy is a turn around play. Management has batted for average for years, hitting singles and doubles. They swung for the fences with Tres Palacios and the GP and are now paying for it dearly. I believe management has learned their lesson (note that they gave Andrew Atterbury the boot, he was responsible for corporate development and acquisitions).
Inergy has a large slate of projects on their plate that over the next 18-24 months should get them back above a 1.0x coverage ratio. The propane operations aren't ideal, but they throw off good cash flow, even if it is seasonal. Ideally they would simply divest the propane assets like Energy Transfer did, but they won't get the kind of premium multiple that midstream assets command.
I wouldn't bet the house on Inergy, but with a coverage ratio of .8x, at most you are looking at a 20% distribution cut. It is a very nice speculative position that will likely give a nice return as the Shermans work to rebuild Inergy. I think this also highlights the importance of fee based, contracted assets as well the importance of high coverage ratios.
Now that Inergy has the OK to build Marc I and StageCoach North-South II, I think you will see an increase in price as they start spending money and people realize it will happen.
Inergy was once one of the elite MLPs and I believe they will likely return to that status, but it will take time to recover from their power hitting attempts