Deutsche Bank Starts Tallgrass Energy Complex at Hold (TEP) (TEGP)

Deutsche Bank initiated coverage on Tallgrass Energy Partners (NYSE: TEP) and Tallgrass Energy GP, LP (NYSE: TEGP) at Hold with price targets of $56 and $34, respectively. Analyst Kristina Kazarian noted valuation relative to peers.

"The Tallgrass complex is one of the simpler multi-tickered entities in our space. TEP is a growth-oriented MLP (K-1 filer) with natural gas and crude assets in the Rockies and Midwest. TEGP owns no assets, making it a levered play on TEP’s cash flow growth, and its 1099 status opens it to a wider investor base. An inventory of $500m of EBITDA sitting up at the parent creates multi-year visibility to 20% distribution growth at TEP (and 40% at TEGP). Despite a strong management team and solid asset base, we are initiating with holds on both names based on valuation relative to its peer sets," said Kazarian.

"Holding to the valuation methodology we outlined in our recent sector initiation, we viewed the relative valuations as fair. For TEP, we balance the peer set yield of names like SXL and TLLP against both TEP’s historical trading yield (4.5%) and average spread to the AMZ (-125bps) to come up with our target 4.75% yield. TEGP currently trades at an implied 2.0% yield. With potential headwinds from PE monetization and recontracting risks at TEP, we view 2.25% as a reasonable LT multiple (which is in-line with our PSXP yield). We think this as reasonable as TEGP has a slightly higher DPU growth rate but lacks a strong sponsor (like PSX)," added the analyst.

For an analyst ratings summary and ratings history on Tallgrass Energy Partners click here. For more ratings news on Tallgrass Energy Partners click here.

Shares of Tallgrass Energy Partners closed at $50.79 yesterday.

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