EUR 850.00 For Business Accounts Only

Morningstar | Tallgrass Energy Reports Solid 2Q Following Close of Simplification Transaction

Tallgrass Energy's second-quarter results were as we expected following the recent close of the simplification transaction. We plan to maintain our $25.50 fair value estimate and narrow moat rating. The firm benefited from record average throughput of 348,000 barrels per day at Pony Express, higher volumes at the Rockies Express Pipeline, or REX, and strong performance across its natural gas processing business. On a pro forma basis, EBITDA was $203 million, up from $90 million last year, mainly reflecting the additional 25% of REX that was acquired earlier this year. Aside from the higher interest in REX, the REX pipeline boosted EBITDA by about 10%, as we believe higher levels of Rockies production has resulted in increased volumes on REX, more than offsetting the flows lost to competing pipes moving gas southward. The crude oil and gathering, processing, and terminaling segments reported more modest increases to $78 million and $17 million from $70 million and $13 million, respectively. Financial leverage of 4.2 times debt/equity including the proportionally consolidated results from REX and a distribution coverage ratio of 1.18 times are reasonable as well. Finally, as we noted recently, we do think the recent investment by Tallgrass into crude oil export terminals and a pipeline, leveraging its Pony Express position is smart and should be value enhancing.