Friday, September 27, 2013

Energy Companies Come to Market

Investors looking for a piece of the public offering action from the alternative energy industry have been sorely disappointed in recent months.  The last big initial public offering in the sector was SolarCity, Inc. (SCTY:  Nasdaq) in December 2012.  Then in April 2013, there was an initial public offering of the REIT Hannon Armstrong Sustainable Infrastructure Capital (HASI:  Nasdaq).  
Anyone looking for bragging rights to IPO shares will have to look to the conventional energy market.  Last week Valero Energy (VLO:  NYSE) filed to raise as much as $300 million in a new master limited partnership it is forming called Valero Energy Partners, a logistics-based business.  The partnership is to own oil and refined petroleum pipelines and terminals in the Midwest and the Gulf Coast.  Valero has a handful of ethanol plants and a wind-farm as well as the Diamond Green Diesel joint venture with Darling International (DAR:  NYSE).

Cheniere Energy, Inc. (LNG:  NYSE) is undertaking a bit of reorganization.  A new holding company has been organized  -  Cheniere Energy Partners LP Holdings  -  that will own a 56% stake in a Cheniere master limited partnership.  The underlying assets are regasification facilities at the liquid natural gas terminal Sabine Pass in Louisiana.  It will be a very large offering of $690 million and it will give investors a stake in proven, stable assets and a flow of business in the burgeoning U.S. natural gas market.

By comparison the $100 million offering planned by EP Energy Corporation is chicken feed.  However, the preliminary valuation of the company is $8 billion, implying a nice step up for it owner private equity group Apollo Group.  It was just last year that Apollo had taken the company private as a maneuver to enable in the sale of parent El Paso Corp. to Kinder Morgan.  Apollo paid $7.15 billion.  The ‘new’ EP Energy is expected to trade under the symbol EPE. 

A stake in any of these deals means predictable earnings and cash flows, something alternative energy companies have been slow to deliver. SolarCity is still operating in the red and Hannon Armstrong reported a whopping $5.7 million loss on $3.4 million in sales just in the June 2013 quarter alone.  Perhaps a stake in one of these cash generating gas companies on the current IPO calendar can help investors wait out ramp to profitability in the alternative energy plays.



Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  Crystal Equity Research has a Buy rating on DAR shares.

 

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