|Shares Out. (in M):||57||P/E||0.0x||0.0x|
|Market Cap (in M):||401||P/FCF||0.0x||0.0x|
|Net Debt (in M):||125||EBIT||0||0|
Atlas Energy, L.P. (ATLS) is the General Partner of Atlas Pipeline Partners, L.P. (APL) and Atlas Resource Partners, L.P. (ARP). On October 13, 2014, APL announced it was selling itself to Targa Resources Partners LP (NGLS) and simultaneously, Targa Resources Corp (TRGP) was purchasing all related GP interests and shares of APL owned by ATLS. The remaining stub or “spinco”, as of the close on October 24, 2014, is priced at $7.04 and has an effective yield of 17.7%, which is a HIGHER yield than the underlying LP (ARP’s current yield of 14.3%) which is shocking given that the ATLS stub is the general partner with substantial IDR rights and is expected to enter the “high splits” in the near term. I believe a more appropriate yield for the stub is 8%-9% which equates to a price target of $13.89-$15.63 into the deal close sometime in Q1 2015 which is an expected return of 122% on the high end in less than five months.
A share of ATLS reflecting the transaction with TRGP consists of the following:
Excluding the cash and TRGP shares with a combined value of $32.16 that will be distributed, the value of the stub is $7.04 given the current price of ATLS of $39.20. In the release related to the transaction, ATLS indicated that the expected initial annual distributions would be $1.25 per unit indicating a current yield of 17.7%. However, a full understanding of ARP's distribution is required as most of the $1.25 per unit distribution will come from dividends on the ARP shares the ATLS stub owns and GP and IDR rights held by the stub in ARP.
There are approximately 57mm fully diluted units of ATLS outstanding when multiplied by the current stub value of $7.04 is approximately $401mm in market cap. Including expected new debt of $125mm, the EV of the new entity is $526mm. The SOTP value of the assets are as follows:
Adding these assets yields a SOTP value of approximately $730mm. Backing out the expected $125mm in pro-forma debt yields a stub equity value of $580mm, or $10.61/share. I believe that this SOTP value is low because it assumes no growth in any of the GP earnings streams of the stub which is highly unlikely. In addition, over time, retail investors seeking yield will make this stub a yield oriented play.
I believe that there are three reasons for the disconnect between the value of the stub and the underlying LP:
The value of the stub will be realized as the company attends conferences and explains the story into the deal close in Q1 2015. In addition, I believe there are additional catalysts that could play out:
Links to the call can be found here:
ARP currently yields 14.3%. In a follow-on note or update, I will articulate why I believe that the distribution is secure at ARP. The appropriate dividend yield for a GP of an upstream MLP should be 8%-9% yielding a price target of $12.50-$15.63. I will provide comps in an update to this post (VIC community please advise if you would like me to add any or consider particular comps).
The next two weeks are critical as I suspect investors will receive a substantial update with respect to spinco and ARP. Please read the deal release and listen to the conference call. At a minimum, it will become clear that the dividend at ARP ($0.1966 per month or $2.36 annually) is well secured and a target of up to $15.63 at spinco is based on sustainable cash flows from the dividend paid monthly at ARP. It will also become clear that the IDR revenue stream will accelerate in the coming year.
ATLS announcement of Targa deal:
|Entry||10/26/2014 11:56 AM|
Total sum of revenues is approximately $91mm. Expenses are as follows:
Approximate DCF of $mm. 57mm shares. $1.26 per unit.
Hope this helps.
|Subject||RE: RE: Dividend|
|Entry||10/26/2014 12:05 PM|
|24.7mm shares of ARP at $2.40 = $59mm (remember that the 3.7mm preferred shares have an equivalent dividend to the common $10mm from Arkoma Curent $16mm from IDR and GP interests at ARP growing to at least $20mm $1mm from Lightfoot Capital Partners $1mm from Atlas Growth Partners Total sum of revenues is approximately $91mm. Expenses are as follows: G&A of approximately $10mm (most G&A goes with sale) $150mm in new debt at 6% = $8.25mm $1.5mm in Arkoma maintance capex Approximately $70.5mm in DCF. 57mm shares. $1.25 per unit. Changed debt to $150mm. Lowered interest to 5.5%.|
|Subject||RE: RE: Dividend|
|Entry||10/26/2014 12:40 PM|
As someone who has invested in various Atlas entities for ten years, I dont see how this has $10m of G&A. The audit alone for the holdco cost over $3m, directors made over $1m, and you can bet your life that Jonathan and Ed will make a combined $12-20m. Other NEO's will make another $7-10m. This is going to have something like $30m of G&A I think.
|Subject||RE: RE: RE: Dividend|
|Entry||10/26/2014 01:01 PM|
I am relying on what is in print on the $1.25 dividend along with my calculations. They just put it in print 15 days ago and would have had to have an estimate of go forward G&A at the time to make it. However, call the company and walk through it with them. I have and believe $10mm is a decent estimate for G&A.
We will know what is going to happen by the November 11th earnings call. My guess is that we will see further meat on the bone with respect to ARP's dividend or a possible strategic transaction and you will be more comfortable with the DCF per unit and dividend for the stub.
On a side note, if I take your assumed extra $20mm in G&A, still a $0.90 distribution. Stub should be worth $10-$11.25 assuming a 8-9% yield. Still represents a subtantial premium to the current stub value of $7.04 of 42%-60%.
|Subject||RE: RE: RE: RE: RE: Dividend|
|Entry||10/26/2014 02:08 PM|
Spoke with Brian. Agree on all. Intuitively agree on point about same asset trading at big premium. It should trade at some premium due to IDR. These guys won't sit still is very true.
|Subject||Stub with today's energy sell off yielding 20.7%|
|Entry||10/27/2014 10:48 AM|
Two developments today:
1) Weakness in energy markets
2) Upgrade of TRGP by Global Hunter
Given the selloff in energy, and the outperformance of TRGP due to an upgrade, the stub now yields 20.7%.
ATLS at $37.96
TRGP at $126.01
0.1809 shares of TRGP = $22.80. Plus $9.12 in cash = $31.92.
Stub trades at $6.04.
$1.25 expected yield.
|Entry||11/05/2014 09:59 AM|
Any thoughts on the announcement today of next year expectations by ARP?
|Entry||11/19/2014 04:26 PM|
I think the biggest "at risk" piece to their expectations are the fundraising goals. They have in the past raised numbers much larger than their 2015 goal of $275mm but I would imagine it will be harder to get investors excited about owning a piece of a well through an investment partnership in this tape. However, the real benefit of the oil and gas partnership business to the individual investor is an 85% shield of the investment value against income in the year in which the investment was made. So it ends up being mostly the value of the tax shield in the first several years. The company claims it has significantly increased its distribution network this year for soliciting investments in the partnership business so it is unknown how that will work.
Nat gas has moved up and they increased their hedges there. They have some differentials which are wide a some natural gas hubs and others that have narrowed for the unhedged volumes. So jump ball.
Oil is decently hedged but unfortunately they did not get all of the Eagle Ford volumes hedged prior to the acquisition's close. $83 average price doesn't seem unrealistic given 70% of volumes are hedged at $90.
Net, I believe that $2.40 is a doable and realistic distribution.
|Subject||Re: Friday's Price Movements?|
|Entry||11/19/2014 04:33 PM|
Sorry, I missed this one. Still trading at a big yield. TRGP has certainly been down but the stub has not increased in nominal value.
It is still a head scratcher why a GP would trade at a discount to the LP. I still believe that this stub takes up too much capital, the energy tape is far from stable, and investors must be showing some skepticism over ARP's projected 2015 numbers (addressed in another post I just made).
|Entry||01/27/2015 08:32 PM|
Are there any tax issues that ATLS unit holders will be subject to as a result of the spin off of Atlas Energy (new co,) and the acquisition of TRGP.I understand the tax impilcations will vary depending on the tax basis of each individual ATLS unit holder.My question is (1) what is the imbedded tax liability that easch ATLS unit holder will be subject to, apart from individual basis, as a result of an MLP ( ATLS) being aquired by a C-corp(TRGP).(2) Is this tax the result of ATLS's nonrecourse liabilties to each unit hiolder?