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Inergy, L.P. Message Board

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  • marklibera marklibera Apr 28, 2012 12:22 PM Flag

    New Dividend

    As to whether the "midstream" company will be valued higher, I think the jury will still be out. In essence, the value of the propane business was $3-4 (measured either by the jump in NRGY's price or what SPH paid for it), so it is natural to assume NRGY's price post-sale goes to $16 to reflect the remainings parts. The remaining piece will be distributing $1.14 per year and the question is what yield is put on that cashflow. That can't be determined until the market sees some growth. Companies like ETP with no recent distribution growth assign a yield around 7-8% (at 8% the price would be $14.25). The "midstream" description may be slightly misleading. Midstream can be used to describe so-called "gathering and processing" MLPs like MWE, APL, NGLS and EDP that have pipelines and process nat gas into its component parts. Most of these trade at yields of 5-6% with some a little higher. I don't think NRGY has those processing facilities where they make money because of the demand for nat gas liquids and the margin on NGLs.

    Then again, the publicly traded general partners (there are a few left, like ETE, TRGP, ATLS) trade at lower yields than their underlying MLPs because of their leverage to the underlying MLP because of IDRs. The old gp of NRGY, NRGP, had a great run before it was acquired by NRGY because of the greater growth in its distribution. The IDRs of NRGM hit the high level relatively soon after NRGM's distribution level increases, so the stock price of NRGY could be transformed into a higher growth gp, but first that high growth at the NRGM level needs to be established. I'm not sure the storage assets that NRGY bought, which they will probably drop down into NRGM, will produce the increase in distributions to drive growth.