richard thanks for opening a healthy discussion. I too have a considerable amount invested in mlps. On mlps I look at the distribution coverage and cagr and not at the financial metrics.
Recent history: Second quarter results were poor attributable to "retail" propane down $14.1 mm. Retail propane sales were 129.7 million gallons compared to 147.2 million gallons sold in the same quarter of the prior year. Retail propane gross profit, was $164.3 million for the quarter compared to $178.4 million in 2010
Wholesale propane sales and midstream were up $16.4 mm in the second quarter which offset the retail propane slide. with wholesale propane at $32.8 million in the quarter compared to $32.2 million in 2010. Gross profit from midstream operations was $45.8 million comapred to $30.0 million for 2010
Also their G&A costs are way down as their are completing digesting the gp merger. For second quarter perating and administrative expenses decreased to $81.7 million compared to $87.2 million in 2010.
The major financial issue for the quarter came from $49.4 million in costs related to early extinguishment of debt in connection with Inergy’s refinancing as previously announced which should not be repeated in the near future.
Current: Now putting history aside for a momement; year to date US propane stocks are at the low end of the 5 year average, production is nearly flat to slightly up from 2010, however propane demand is down around 180k barrels per day. When the end of heating season propane prices were last reported they were still running fairly strong with wholesale at arounc 1.40 and residential at 2.86. Also the latest us factories report shows a currtailment in activity. Taking all of these factors in aggregate tells me third quarter propane results may be robust as some are thinking but also should not be terrible either.
Future: Their NE storage is at the heart of the ny city gate and a outlet for the increasing marcellus gas play with fixed fees and should provide significant upside potential. Their Texas storage likewise provides significant upside to the eagle ford growth coming out of the copano/km expansion projects. Also it is not as easy for users of propane to convert as is assumed without incurring significant upfront costs so there may not be as much conversion to natural gas as anticipated, but there will still be conservation as what happend in late 2010 and early 2011
So taking the second quarter results into consideration with the improvements in midstream and wholesale propane and lower G&A and no writeoff for debt, flat retail to slightly better retail propane sales/prices and the outlook for storage growth in their ne and texas assets I would be surprised to see further "material" deteroration in the unit price (caveat not withstanding a crater in the US markets of International markets for other issues) and even the chance for some improvement in unit price back to the mid 30's over the next 6 months of so.
The markets look terrible in China, Europe and the U.S. I expect more of this and price drops have not stopped.
I am predicting this November-December is going to be a terrible tax loss selling period.
Most shares are going lower. The U.S. has started loaning the European Central Bank dollars which are then being loaned to their banks which are facing the problems our banks faced 2-3 years ago.
This is going to get bad. I originally saw a 20%+ decline when I started this thread. Now that I see the deterioration across China, Europe and stagnation here, I'm thinking Inergy is going down another 20%.
I will get a good buy in point but will wait for the 4th quarter report. Of course the third quarter is coming up too.