Natural Gas Pipelines and MLPs
With this report we are introducing our 2Q'13 estimates and reiterating our overall favorable view of the sectors. With committed, contracted infrastructure construction ongoing at peak levels and financing being achieved at low costs, we continue to favor investment in the Natural Gas sector targeting 3.5% average yields and 10% dividend growth and in the MLPs with 5.8% average yields and 7% distribution growth. We recognize the uptick in interest rates during the quarter with the point of emphasis that the peak capex are still occurring at historically low costs of capital. The benefits of the spread between WACC and project returns will generate growth for years to come.
Eoin Treacy's view Some of the primary beneficiaries of the
growth in natural gas production have been companies that thrive in a low commodity
cost environment or who profit from the increased volume of the commodity that
must be transported. Pipelines fit squarely into the latter category and because
so many are set up as MLPs, they tend to have competitive yields.
Access
Midstream is somewhat overextended following an impressive rally but a break
in the medium-term progression of higher reaction lows would be required to
question upside potential. Western Gas Partners
has a similar pattern.
Enterprise
Products Partners found support last week in the region of the 200-day to
form an upside weekly key reversal. A sustained move below $58 would be required
to question medium-term uptrend consistency. Plains
All American Pipeline has a similar pattern.
Kinder
Morgan has been ranging, with a mild upward bias, for more than a year and
also posted an upside weekly key reversal last week.
Rose
Rock Midstream has returned to test the region of the 200-day MA and the
upper side of the underlying trading range near $35. A sustained move below
that level would be required to question the consistency of the medium-term
uptrend.