UPDATE: Morgan Stanley Initiates Coverage on Plains GP as Valuation Reflects Strong Asset Positions

In a report published Monday, Morgan Stanley analyst Stephen J. Maresca initiated coverage on

with an Equal-Weight rating and $25.00 price target. In the report, Morgan Stanley noted, “PAGP offers leverage to PAA's 9-10%+ annual distribution growth through ownership of the general partner interest and associated incentive distribution rights. With PAGP benefiting from a pure-play structure (no ownership of assets or limited partner units) and positioned within the 50/50 IDR splits, we see a growth trajectory of 33% in 4Q 2014/4Q 2013, 21% in 2015 and 14% in 2016, implying a growth multiplier of 2x+ PAA's distribution growth profile that compares favorably to other GPs under our coverage (C-Corps and MLPs), while also offering lower risk and better sustainability, in our view. While we acknowledge premium near-term valuation (3.2% yield on MSe 2014 dividend and 31.7x 2014e P/DCF vs. GP peers at 3.6% 2014e yield and 24.1x 2014e P/DCF) makes it difficult to take a more aggressive view with our rating at this time, we believe the magnitude and sustainability of PAGP's growth profile coupled with moderate underlying fundamental and growth execution risk position it favorably, with substantial leverage to growth investment at PAA (see p.11) offering upside potential not captured in our model (and making PAGP our preferred way to participate in Plains). On a twelve-month forward view, we see a total return potential of 13% based on our $25 price target.” Plains GP closed on Friday at $22.89.