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Targa Resources Partners LP Message Board

  • passandshoot passandshoot Aug 22, 2008 6:47 AM Flag

    Lehman Maintains Overweight

    Targa Resources Partners LP (NGLS - US$ 20.93) 1-Overweight

    Change of Earnings Forecast Strong Q2, Adjusting for Hedge Reset

    Investment Conclusion

    We maintain 1-OW rating and $30 PT given Targa's strong and visible distribution growth prospect driven by asset drop downs by parent. We think NGLS can grow distribution at 4-year CAGR of 13%, assuming $600 MM/yr acquisition run rate and $40 MM organic spending/yr.

    􀂉 Q2 EBITDA reached $55.5 MM vs our est of $51.4 MM, driven by favorable commodity prices, solid volume growth, partially offset by higher operating expenses. DCF reached $40.1 MM vs our est of $36.1 MM supported by lower interest expense partially offset by higher maintenance capex.

    􀂉 Mgmt re-set commodity hedges at a higher strike price up to 2010 to achieve greater cash flow stability at higher margin. Net cash flow benefit appears minimal given $87.4 MM re-hedge cost, financed through borrowing from credit facility.

    􀂉 NGLS announced Q2 distribution of $0.5125 or $2.05 annualized, which represents 23% increase QoQ and 52% increase YoY.

    􀂉 Our PT of $30 is based on 12 month distribution run rate of $2.16 (up from $1.77) and a target yield of 7.25% (up from 6%). An increase in distribution run rate offset by higher target yield due to capital market volatility.

40.65+0.07(+0.17%)1:53 PMEDT