Credit Suisse analysts have initiated coverage of Tallgrass
Energy Partners LP (
) with an Outperform rating and a price target of $26 a share.
"We believe TEP's strong dropdown inventory ($400-$450mm in
EBITDA) helps offset re-contracting risks in its natural gas
transportation contracts and commodity exposure in its Midstream
(processing) segment," said Credit Suisse.
Expect High Single- to low Double-Digit Growth
"TEP priced its IPO at an attractive yield of 5.3% (based on its
minimum quarterly distribution) at $21.50/unit. Post IPO, TEP is
well positioned to drive long-term high single-digit distribution
growth, given (1) ~$425mm in EBITDA from assets available from
TEP's sponsor; (2) alignment of management interest (own 25% of GP)
in growing distributions; and (3) a strong balance sheet (~3x at
IPO and ~2x post sale of Pony Express to TEP's sponsor for
Growth From Dropdowns Offsets Re-contracting Risks
"While we don't expect TEP to initiate dropdowns until 1H:14,
and both TEP and sponsor pipeline transport contracts face lower
prices on re-contracting, we believe that management is likely to
offset lost EBITDA by increasing the pace of dropdowns from TEP's
sponsor to TEP."
Shares of TEP are up almost 1% to $21.50 in afternoon trade, and
move within a 52-week range of $20.60 - $22.91.
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