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Inergy, L.P. Message Board

  • abter1 abter1 Aug 8, 2007 4:20 PM Flag

    AGEdwards updates NRGP & NRGY

    AGE published "recent developments" reports for both NRGP and NRGY today. The guts of the NRGY report is in this post; similar for NRGP is on that board.

    I find the two reports somewhat inconsistent. They have NRGP as a hold with a great future, but NRGY as a buy, even as they describe how NRGP is a pure leveraged investment in NRGY. As NRGY grows its distribution, NRGP's will go up 3.5 to 4 times as fast. I don't agree with their conclusion that the expected growth is fully factored into the NRGP price (the rational for the hold rating), but not into the NRGY price (their reason for the buy). I'm still very happy owning NRGY instead of NRGP.

    "Investment Premise for NRGY
    -- Distributions should benefit from $323 million of midstream projects and acquisitions coming on stream during FY07 and FY08. Distributions are estimated to grow 11.1% over the next four quarters.
    -- Our distribution run-rate estimate in one-year (August 2008) of $2.60 per unit implies a forward yield of 8.1% at recent prices.
    -- FY08 distribution coverage is estimated at 1.1 times, slightly below the propane MLP group average of 1.2 times.
    -- We rate NRGY Buy/Aggressive based on its above average distribution growth potential and yield.
    FY07 Estimates
    Our adjusted EBITDA estimate is now $212 million, up from $209 million previously. This would represent a 10% increase over FY06 based on firm margins, a 1% increase in annual retail volumes sold and a 48% improvement in gross margin from the partnership�s midstream operations. FY07 paid distribution was $2.28 per unit, slightly below our estimate of $2.30 but still a 6.5% increase over FY06.
    Distribution coverage of 1.2 times which is in-line with the propane MLP group average.
    FY08 Estimates
    Our adjusted EBITDA estimate remains at $239 million, based on firm margins, a 5% increase in annual volumes sold and a 39% increase in gross margin from midstream operations.

    FY08 paid distribution estimate remains at $2.52 per unit, a 10.5% increase over FY07. Distribution coverage of 1.1 times which is slightly below the propane MLP group average of 1.2 times.