1Q Tops CS Forecast But Growth Catalyst Remains Elusive;
ASSUMING Coverage with a NEUTRAL Rating & TP of $32 (prev
Assuming Coverage: We are assuming coverage of Spectra Energy
) with a Neutral rating and TP of $32.
1Q Results Top CS but Below Consensus: SEP reported 1Q12 EBITDA
and DCF/unit of $84mm and $0.62/unit which was above CS's $68mm and
$0.57/unit, respectively, but slightly below consensus.
$30mm in Growth Capex Won't Get It Done: SEP has guided to $30mm
in growth capex for FY2012 which is unlikely to provide enough in
the way of incremental cash flows to support increased distribution
growth. With over $600mm in available liquidity at the end of 1Q,
SEP is in a good position to make an acquisition similar to its
$390mm acquisition of the Big Sandy pipeline last year. However,
given somewhat elevated acquisition multiples, finding a highly
accretive acquisition target could prove challenging, so we remain
on the sidelines.
Maintain Neutral, TP to $32 (from $31): We maintain our Neutral
rating and have raised our TP to $32 (from $31) as we roll forward
our distribution outlook. We have assigned a 6.0%-6.50% yield
target range for SEP which represents a 25 bp discount to the AMZ.
Adding an estimated $1.97 in distributions over the next 12 months
implies total return potential of 3%-11% which keeps us at Neutral.
Using a three stage distribution discount model assumes a 1st stage
5-year distribution growth rate of 3.7%, 2nd stage 5-year
distribution growth rate of 3.0%, and terminal growth rate of 1.5%
supports our current TP.
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