Several members have asked me what I think if ETP. I don't follow it closely, but it does control a lot of very important midstream assets. Below is what a very smart analyst who does cover it has to say. - Dan
Deutsche Bank - Equity Research - North America
Energy Transfer Partners Alert - CEO Convo Provides Some Comfort
09 February 2016
Download the complete report: http://pull.db-gmresearch.com/p/198-358 ... c2d320.pdf
Energy Transfer Partner {Ticker: ETP.N, Closing Price: 25.70 USD, Target Price: 44.00 USD, Recommendation: Buy}
CFO Removal Sparks Sell-Off In two short 8-Ks (late Friday + this morning) the Energy Transfer group announced the replacement of Group CFO Jamie Welch. No reasons were given beyond brief language saying his departure was not due to accounting or financial matters – which was reiterated in our conversations today. That said, Welch was seen as a financial architect within the Energy Transfer family and the limited details spooked the market: ETE and ETP closed down -42% and -23% today, respectively, vs. the AMZ -8%.
Likely No Change to LT Strategy Going forward, we expect Group CEO Kelcy Warren to take a more visible role in messaging / promoting transparency – which we believe is key in this market. In our catch-up, Warren acknowledged perceived headwinds pressuring his stocks – sub $30 crude, counterparty risk, and the $37b merger. We left with the impression that the ETP business model remains unchanged given our confidence in the strength of its cash flows (as well as at SXL and SUN). Further, mgmt reiterated their commitment to ETP’s IG rating, which we found comforting and important.
CHK Concerns Mounting – Doesn’t Help Sentiment Compounding, today CHK confirmed that it had retained restructuring advisors, but noted it was focused on strengthening its balance sheet and had no plans to pursue bankruptcy. From a balance sheet perspective we reiterate our view that WPZ should have no impact on ETP, but acknowledge continued concerns on complex-wide counterparty risk are a sentiment headwind.
Some Questions Remain We still have several questions, however, which may not be addressed until earnings in two weeks:
Can we rely on forward guidance?
How will this impact financing options?
What does this mean for the pending deal?
Don’t Think This Level of Market Concern is Warranted Overall, we think this was a difference of opinion at the C-suite level and not due to anything that could jeopardize the complex as a whole. Tone regarding Welch was complimentary and focused on the possibility of him remaining as a consultant for the LNG business – we note Welch maintains a large position across the complex. Now trading at a 21% yield and 6x EV / EBITDA, we maintain our Buy on ETP as we think the sell-off was overdone. A key risk would be any change to the LT business model and the distribution.
Kristina Kazarian (+1) 212 250-0717 - kristina.kazarian@db.com