NGLS Research Summary
May 18, 2010
Targa Resources Partners LP (NGLS - US$ 24.83) 1-Overweight
Change of Earnings Forecast
In-line Q1; $420 mm drop down closed
We believe NGLS continues to offer an attractive investment opportunity given its prudent management and solid growth opportunity. We raise 2010 distribution forecast to 5% (from 3%) driven by accretion from $420 mm drop down closed effective 4/1. We believe NGLS can grow distribution mid to high single digits long term driven by projects and acquisitions. In 2011 NGLS should see the benefit of Cedar Bayou fractionation expansion currently underway, which should improve cash flow quality given long term firm space contract with OKS. We also believe TRI will send down remaining assets at parent by end of the year, in which case full year benefit of the transaction will help grow 2011 distribution. Importantly, we believe Targa has solid organic project opportunities that can generate high quality cash flow in the NGL downstream space. This includes providing propane, butane solutions in the Marcellus and Eagle Ford shales, expanding LPG import/export facility in the Galena Park, as well as further expansion of its fractionation capacity (Gulf Coast fractionator).
�� We maintain our PT of $28 based on $2.20 distribution and 7.75% target yield.
Because it got ahead of itself in price to yield, running under its peers. It's about right now, after today's drop, right in there with MWE for example. But the market's headed down, it appears, and this isn't exempt.
I have been adding to my position as I believe mgt has doen a great job in diversifying its revenue streams and adding stable fee based revs to mix. Further with distribution safe and probably on rise more the better.