Wednesday, January 5, 2011

PAA Natural Gas (NYSE:PNG) Improves Growth Outlook with Southern Pines Acquisition

The Southern Pines acquisition should help the growth outlook for PAA Natural Gas Storage, L.P. (NYSE:PNG), as a weak gas storage market will be helped by the consistent cash flows coming out of Southern.

Barclays said, "PNG ends 2010 announcing first acquisition and will start 2011 with first distribution bump. While PNG paid a relatively high multiple (17x '11e EBITDA), the Southern Pines acquisition improves PNG's growth prospects as the multiple should compress to 9-10x following low-cost capacity expansions. PNG guided to its first distribution increase in 4Q10 (+2.2%) and 7.4% growth over the next 12 months. Importantly, Southern Pines contributes stable cash flows backed by a high percentage of contracted capacity through 2015, which provides downside protection from weak gas storage market conditions. Upside potential could come from growth in gas-fired power generation in the southeast and optimization activities."

Barclays maintains an "Overweight" on PAA Natural Gas Storage, L.P., which closed Tuesday at $25.35, gaining $0.17, or 0.68 percent. Barclays has a price target of $27 on them.

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