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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (30195)3/5/2008 12:38:44 AM
From: Spekulatius  Read Replies (3) of 70388
 
EP, WMZ, I decided to switch from EP to WMZ. WMZ is a newly IPO'd MLP for WMB's pipeline assets. it currently is trading below the IPO price of 20$ and I think it has good prospects for distribution growth because of "dropdown" of assets to this MLP.

I think WMB is interested to getting WMZ to a 9% yield at which point they are entitled to 50% of the incremental earning gains 9as the general partner).

WMZ trades at around <10x EV/EBITDA which is a discount to most other pipeline MLP,s despite lower leverage. Right now they only own a 35% stake in Northwest Pipeline (spanning across the Rocky Mountains, WA and OR).

My notes:
EquityL
33.5M units @20 =667M$
Debt =243M$ (this is WMZ 35% share of Northwest debt)
EBITDA approx 90M$
Distribution: 1.15$/unit

I think this is a better and lower risk bet than EP which trades at 10X EBITDA but this includes the volatile E&P segment (which usually command much smaller multiples than Pipeline assets). I keep this position in an IRA and it's going to be small enough so i don't have to worry about the 100$/year reporting limit.

As I mentioned before i am very bullish on North American NG and I believe that Pipelines are a secular and low risk growth story that is going to benefit from much stronger NG pricing, IMO. Even if NG does not rise as expected the owner of MLP unit's still should do OK.
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