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Friday October 12, 2007
Cheniere Energy (CQP): A 'Cash Machine' in LNG?
Growth and income expert Bryan Perry explains, “One new position we're starting to build is Cheniere Energy Partners (NYSE: CQP), a play on liquefied natural gas (LNG).” Here, he explains why. “LNG is natural gas (methane) -- the same clean, safe energy source used to fuel our homes and industries. In liquid form, natural gas can be shipped long distances safely and economically in specially designed ships with insulated storage tanks. 
”World demand for LNG is expected to double by 2010. The reason demand for LNG is growing is that it is viewed as safe, flexible, reliable and economical. One other big (perhaps the biggest) plus in the current (and growing) green climate is that LNG is environmentally acceptable. ”Roughly 30% of Cheniere’'s stock is held by institutions and another 6% is owned by mutual funds, including many of the ‘big boys’ of the investing universe. Its top institutional holders include JP Morgan, Goldman Sachs, Deutsche Bank, Bear Stearns, UBS and Morgan Stanley. ”The Master Limited Partnership debuted as an IPO on March 7, 2007 at $21 per share amid strong demand. It carries a $3 billion market capitalization, and any earnings are going to be due to interest income on the $1 billion in cash and cash equivalents it's sitting on. “We are jumping on this trend in its earliest stage, since at present Cheniere Energy has no revenues. It’s Sabine Pass LNG terminal is expected to go into commercial operation in June 2008. As planned, the dividends are currently being paid out of IPO funds. At current prices, the dividend yield is right at 9%. “But once CQP activates its massive LNG terminal, I think the stock is going to trade strongly higher on rising optimism. LNG is a relatively new form of commercial energy, but it's a ‘ChangeWave’ in the making and I want to be in early -- to start collecting our yield and get the benefit of the full growth ride in the coming months and years. ”CQP's primary business objectives are to complete construction of the Sabine Pass LNG receiving terminal and, thereafter, to generate stable cash flows sufficient to pay the initial quarterly distribution to unitholders. “Over time it will increase the quarterly cash distribution as the partnership goes from $0 revenues in 2007 to $75 million by the end of 2008 -- and then, I believe, much higher thereafter. ”The partnership will be entering 20-year supply contracts with companies like ConocoPhillips and other mega-cap energy players. Also, according to an Aug. 20, 2007, SEC filing, the Cheniere Energy CEO and chairman bought 107,600 shares of common stock. I always like it when the heavyweight in a company invests in his or her own undertaking. “We want to increase our exposure to the very promising LNG story that is really just beginning to take off. Cheniere is just simply a wonderful compliment to our energy holdings.” |
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