Re: Analyst on NGLS latest guidance
when I saw the revised guidance released this morning, I thought the timing was odd. Now we know why they released the information:
Targa Resources Partners LP Announces Secondary Public Offering of Common Units by a Subsidiary of Targa Resources, Inc.
HOUSTON, April 8, 2010 (GLOBE NEWSWIRE) -- Targa Resources Partners LP (NYSE:NGLS) ("NGLS" or the "Partnership") today announced the commencement of a secondary public offering of 8,500,000 common units owned by Targa LP Inc., a wholly-owned subsidiary of Targa Resources, Inc. ("Targa"). The underwriters are expected to be granted a 30-day option to purchase up to 1,275,000 additional common units.
The Partnership will not receive any of the proceeds from this offering and the number of outstanding common units of the Partnership will remain unchanged. The offering will be made under an effective shelf registration statement on Form S-3 of the Partnership, filed with the Securities and Exchange Commission.
Barclays Capital, BofA Merrill Lynch, Citi, UBS Investment Bank and Wells Fargo Securities are acting as joint book-running managers for the common unit offering.
They had to get it out in front of this offering.
This basically cuts TRI's 32% LP interest in NGLS down to 16%. Between the pace of the dropdowns and the secondary, they are being aggressive about winding down TRI, it appears, as fast as NGLS can absorb it.
NGLS is not selling any shares. The parent is selling most of the shares it owns. Shares outstanding is not going up, but the publicly traded float is.
NGLS doesn't get any money from this.
$40's?? Right now it trades at a 7.5% yield, the lowest of the midcap MLP's I hold (ENP, LGCY, MWE, LINE, etc.). At $40 it would yield 5.3%. I don't think so, not while the big boys like KMP are yielding over 6%, and trading at an all-time high to boot.
But, I have been stunned by the chase for yield in these securities, my 2012 target for NGLS was $26 based on an 8% yield. Obviously we've blown by that for the moment, not that it makes sense to sell and get slaughtered in taxes. Still, to yield at 5% is simply expecting too much, tamper your expectations a bit.
Unfortunately, the yield chasers always send stocks well over any perception of real value.
There could be a period of extreme insanity by investors.
S&P has $31 price target and Citi went to $32.50.
Citi estimates there is another $1.2B in potential dropdown assets for Targa to take possession of...... the last dropdown was at a very favorable ebitda multiple of 6% because the assets have a variable revenue flow built into them. Even with the variable revenue flows from the recent dropdown no one can complain about a 6x. Perspective is Williams paid 7x for their recent dropdowns.
I may have been a little overzealous on that forty, but just my gut says it may not be too far off. Regardless, I think we can all say that Targa is a good stock to hold in anyone's portfolio who is looking for both a decent yield and a steady PPS increase that seems to continue it's upward trend. I also like the REIT CIM, a 17.5% yield and PPS fluctuates between 3.5 to a little over 4. GLTA
while $40 may be a stretch right now-- keep in mind distribution increases alter the math a bit. Though Targa has indicated 4 c increase over the next 12 months, their coverage in this environment can easily handle more.
The last 12 months has seen price gains based simply on yield compression, I think we are entering a period of price gains based on distribution increases. Certainly not as dramatic as the past 12--that was (hopefully) a once in a lifetime event. But NGLS and some others have been growing and not just surviving