another month another ML report telling me to buy this with a 12 month forecast of $2.75.
I've already bought a load of these and am set. Things have been moving SLOWLY to say the least, but looks like today there is finally some more insto interest and the volume is starting to break out.
Here's some excerpts from the report.
Duquesne recapitalisation likely
We expect DQE to be recapitalised over the next six months to minimise the
potential of a credit downgrade. The two specific regulatory risks facing the asset
are- (i) the US$218m pension liability; and (ii) PoLR regulatory period expiry. We
are comfortable that DUE has sufficient cash capacity to fund growth capex,
distribution commitments, and inject ~$100m into DQE. This would decrease
DQE’s Debt/EBITDA to 4.2x from 4.9x assuming contribution from co-owners.
12% yield should compress over time
DUE is currently trading on an attractive forward yield of 12.1% versus its 5 year
average of 10.0%. The yield is covered by free cash flow and there should be
sufficient cash on hand to fund expansionary capex out to FY12 and beyond. As the
comfortable cash position becomes apparent we expect the yield to compress.
Growth underpinned by committed capex
Other than the risks at DQE, DUE displays some attractive characteristics. The
forecast 5-year EBITDA CAGR of 5.2% signifies growth stemming from Stage 5B
at DBP (~21% increase in capacity), and the Smart Meter rollout at UED. The
~$630m in proportional capex over the next 3 years is fully funded by cash in
hand as well as committed debt facilities.
BUY maintained, sustainable yield
Our revised PO of $2.75 is reflective of (i) adjustments to capex forecasts at UED and DBP, and (ii) extra capacity charges at DQE in FY10 (~$25m). DUE offers
defensiveness coupled with growth characteristics, headlined by DBP. We think the current yield of 12.4% is sustainable and at 9.1x EV/EBITDA, DUE is trading at a
discount to historical averages and represents good value in the regulated space.
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