Analyst Actions: SunCoke Energy Partners Coverage Initiated With Outperform, TP of $22; Shrs Down 1%, Earlier Hit 52 Week highs


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Credit Suisse initiates with an Outperform, $22 Target Price: "We initiate coverage of SunCoke Energy Partners with a target price of $22, providing a 7.5% yield. We believe that given the various avenues for unit distribution growth (additional dropdowns, new plant, M&A), 7-10% CAGR is possible to 2017."

Company Overview: "SunCoke Energy Partners is a Master Limited Partnership ( MLP ), which manufactures metallurgical coke used in the blast furnace production of steel. SXCP owns a 65% interest in two entities, Haverhill and Middletown located in the Midwest (one in Haverhill, Ohio and the other in Middletown, Ohio), with total annual capacity of 1.7m tons."

Positives: (1) Stable Cash Flows Provide Yield Security: While many MLP investors are unfamiliar with the industry, we believe the inherent stability of the cokemaking business, plus the 5 year guarantee from the parent provide a steady, reliable cash flow stream which is underappreciated, (2) Visible Growth in the Pipeline: We believe that SXCP has 3 levers of growth it may utilize over at least the next 5 years, (i) dropdowns of existing facilities, (ii) dropdowns of other SXC facilities, (iii) new build capacity and M&A (both longer-term drivers), (3) Valuation: SXCP is trading at a discount to its peer MLP comps, currently trading at a yield of 8.0% and 5.1x EV/EBITDA our 2014 estimate, as against an average yield of 6.0% and 11.3x 2014 EV/EBITDA of its peers. We believe this discount is unwarranted.

Risks: "Operating risks, early termination rights for AKS, potential labor disruption, and customer concentration risk. Catalysts: 2013-earnings and approval of new Kentucky facility (for C-corp); 2014-additional dropdowns of SXC facilities."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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