EQT GP Holdings Initiated At Outperform By Credit Suisse; 'Jumping In The Fast Lane'

In a report published Monday, Credit Suisse analyst John Edwards initiated coverage of EQT GP Holdings LP EQGP with an Outperform rating and a price target of $43.

EQGP is a pure-play general partner that derives 100 percent of its cash flow from its MLP, EQT Midstream Partners LP EQM, via incentive distribution rights, or IDRs, as well as distributions from EQT GP Holdings' 30 percent stake in Midstream Partners' units.

Analyst John Edwards expects EQM to generate a 3-year EBITDA CAGR of 78 percent and a distribution CAGR of 23 percent since its IPO in 2012, driven mainly via “an aggressive dropdown program with its sponsor” EQT Corporation EQT.

“With EQM targeting 20% annual distribution growth through 2017 and reaching the high splits as of 3Q14, in our view EQGP is well-positioned to provide a 34% 5-year distribution CAGR, among the highest in our coverage universe,” Edwards wrote.

In the report Credit Suisse noted, “EQM primarily provides midstream services for natural gas producer EQT in West Virginia and Pennsylvania's Appalachian Basin. EQM has completed $2.9B in dropdown acquisitions from EQT since 2013 and ~$100mm of annual EBITDA remains at EQT for dropdown in the future.”

Edwards expects further growth to be driven by organic investments, “most notably the $3-3.5B Mountain Valley Pipeline (MVP, will be funded proportionately to EQM’s 55% ownership) and $300mm Ohio Valley Connector (OVC).”

Edwards enumerated the catalysts as:

• Additional contracting on MVP in addition to 2Bcf/d currently subscribed
• Organic projects at EQM to further expand gathering and transmission capacity