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Inergy, L.P. Message Board

rrb1981 183 posts  |  Last Activity: Sep 21, 2014 8:47 PM Member since: Apr 18, 2001
  • Reply to

    Stock price is constrained by Post Rock selling.

    by geoflex2 Jun 27, 2014 8:22 PM
    rrb1981 rrb1981 Jun 27, 2014 8:31 PM Flag

    I'm buying a lot. Yes, PostRock is liquidating. A year or two from now, I think this will be materially higher and paying a nice distribution (perhaps as much $.24/unit)

  • Reply to

    Progress

    by rrb1981 Jun 27, 2014 3:34 PM
    rrb1981 rrb1981 Jun 27, 2014 6:48 PM Flag

    Understood on being burned. My personal belief is that Constellation (likely to be renamed Sanchez Energy Partners or something to that effect), is at or near the bottom of its valuation. The NAV of the assets coupled with the pending "partnership" with Sanchez should result in CEP being able to do what they were created to do, which is be a cash paying entity. I've been acquiring CEP and will likely to keep adding. I see much more upside than downside especially in a market where not much is "undervalued". This is the classic Graham value buy.

    I would like to see a fairly large deal that is mostly financed with equity (think $25-$30 million). That should help improve the debt/ebitda metrics which should push up their borrowing base and give them some cushion for future deals. A deal of that size, coupled with their current position, which has them teetering around having just enough cash flow to maintain production to slight growth, should result in them having enough free cash flow, perhaps $5-$6 million, which would allow for a $.16/unit/yr distribution. I'd like to see them ease into that over the course of 1 yr increasing the distribution by $.01/q ($.04 annualized).

  • rrb1981 by rrb1981 Jun 27, 2014 3:34 PM Flag

    At the risk of being "early"..I think CEP is really a strong buy at these points. Clearly buying lower would have been better, but CEP has now accomplished (4) major issues:

    1) They settled the PostRock litigation which was hindering them from doing anything more than paying down debt and modestly reinvesting back into the business
    2) They settled the Excelon/Constellation fiasco, freeing them up to seek out Sanchez as a true sponsor (if not GP).
    3) They have developed a relationship with Sanchez that allows them to reduce costs and potentially secure a steady stream of drop down assets
    4) They have divested the Black Warrior Basin assets, allowing them to clean up the balance sheet, they have shifted focus to oil drilling and high IRR recompletions and reworks on their legacy coal bed methane production.

    All of this lines CEP up to return to a distribution paying entity. I am not overly optimistic that the distribution will be meaningful at first, but it is critical to the market and to the equity valuation to begin paying something, even if it is as little #$%$04/yr ($.01/Q) and then to slowly increase it, perhaps by $.01/Q meaning that over the next 2 years they would increase to an annualized rate of around $.32/unit. Getting there would likely require more acquisitions between now and then, that is a spend rate of around $10 million annually, and clearly CEP's "free cash flow" cannot support that while also maintaining production flat, but I firmly believe CEP can support a $3-$4 million presently, especially if they can manage another $15-$20 million acquisition made at typical 6x-7x cf multiple with moderate decline rates and if they can make it with equity it would raise their borrowing base (as Abella commented on during the cc).

    All of the pieces are now in place for them to return to a cash paying entity and with a typical 10% yield (typical for E&P MLP).

    The small size makes growth trajectory/potential very promising.

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