Lehigh Gas Partners (LGP) Expected to Announce Distribution Increase in Downstream MLP Space

March 22, 2013

Lehigh Gas Partners (LGP) has a first-mover advantage in the wholesale distribution of motors fuels, and this downstream oil and gas name has recently acquired accretive assets and is expected to announce increased yield, resulting in unit appreciation, says Ethan Bellamy, Senior Analyst at Robert W. Baird & Co.

“Within the downstream market, we’re big fans of Lehigh Gas Partners, which is a very small, call it microcap downstream name that is a wholesale fuel distribution business. It’s trading just above last year’s IPO price. They’ve done a few significantly accretive acquisitions, and they have first-mover advantage,” Bellamy said.

Bellamy expects LGP‘s next distribution announcement to be higher, and he says LGP units would react favorably after a distrubition increase. He adds that they are first movers in an area where they can potentially use their cost of capital to expand their business rapidly and in an accretive fashion, especially as monetary policy currently seems to benefit master limited partnerships.

“We have extraordinarily accommodative monetary policy out of the Federal Reserve that benefits hard assets and commodities, and that’s what all MLPs do and are. I don’t see a big change in interest rates coming any time soon that would hinder the extraordinarily low cost of capital that’s allowing MLPs to borrow at very low rates and redeploy in highly accretive projects,” Bellamy said.

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