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Inergy, L.P. Message Board

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  • gmax97 gmax97 Jul 21, 2011 11:46 AM Flag

    Citi report on propane

    Actually that tells you what the herd thinks, not if one analyst thinks and whether he was right.

    UBS put out a sell on DLR a few months back, and I read all of the competing analyst reports and decided he was full of skit. Loaded up the boat at $48 and a few short months later its in the $60s.

    I get WFA MLP reports and NRGY is a top pick. They have distribution coverage ratio starting in September at 1.0 so I dont think you are looking at a distribution cut anytime soon. They have unused capacity on their bank lines, and just had a secondary offering so there is liquidity there too.

    Folks that use propane dont stop burning it to cook and heat their homes and their water.

    Unless there is something extremely insightful in the Citi report that no other analyst has thought of, I would tend to appreciate the opportunity to add to a position when its on sale. But that is just me, follow the thundering herd if you wish.

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    • I retired at age 53 and have quadrupled my IRA going vs. the herd. Has anyone actually read the Citi report? The contents are unavailable to me. Perhaps the sell rating has to do with sluggish propane consumption but isn't NRGY mostly storage and pipeline? Perhaps the Citi report is rating it a sell because it doesn't expect the share price to increase....probably would be some merit to that. But NRGY, which has an excellent track record, now yields well over 8%, has focused more on storage, which may augment its other business segments. I own a little of NRGY and am holding. And as for propane, one would have to be encouraged with the trends in propane auto-gas. Declining consumption trends may not be permanent. And has anyone read anything about fracking environmental aspects and economics lately? Nat gas prices may not stay low for long, a prime competitor to propane.

      • 1 Reply to tennvol_30736
      • And those with a cost accounting background know that company costs vary. Companies without high levels of fixed costs can weather sales decline better than the others. Noticed Suburban Propane declared their dividend; FGP(consumption trends for propane have been in decline 10 years) and their distribution record is pretty solid;APU has had consistent distribution increases for same period.

    • There is a great deal of negativity out there and that applies to the propane sub-sector in the energy complex.

      Share price is probably too high with this uncertainty. Couple that with the fact that NRGY carries almost 1/2 billion dollars of goodwill on its balance sheet.

      Think about that. They paid 1/2 billion dollars more for their acquisitions than they were worth.

      Goodwill is not like having plants, storage, pipelines. It's nothing tangible just blue sky.

      There are many other equities that are yielding 7-8%+ without that monster goodwill. Its better to get out buy something else such as EVEP, LINE, NLY, VNR, and come back when the negativity on this sector by the institutions is over.

      If you can sell here and buy back 10% cheaper in 6-12 months it is better to own something the street loves and they love the names I mentioned above. Collect the same dividend, have shares appreciate 5%-10%, then come back and visit propane and NRGY later on.

      • 2 Replies to richardleeds
      • By all means sell away. MLPs trade based upon two things, first and foremost their distribution and second on tax deferrals available. I would not put a lot of stock in what some beancounter said assets were worth. If you acquired a company that serves propane tank customers that have a lot of stability, where on the balance sheet do you put that asset being the customer list?

        WF advisors has this as one of their top picks, and indicate the recent acquisition solves the FFO shortfall starting September. Coverage ratio of at least 1.0. Yield right now is something in the 8.2% range and NRGY is the strongest in this subgroup. You get paid to hold, which if you have ENP in your holding that is what you are doing there, waiting on the buyout. And some of your holding have the problem of asset depletion which is worse than an intangible asset, its real assets being used up.