11.05
FCE reported Q3/09 CFPU of $0.46 versus $0.51 in Q3/08 and higher than
consensus of $0.40. Results benefited primarily from a stronger-thanexpected
contribution from Aux Sable, due to frac spreads that came in
considerably higher than our assumptions.
The company indicated that it intends to maintain its current distribution
policy of $1.00/unit post conversion into a corporation, however no
definitive timeline was provided. Nevertheless, the statement should
provide investors with marginally higher comfort in this regard.
We have raised our frac spread assumptions this morning, for Q4/09, 2010
and 2011, and as a result, our cash flow and EBITDA forecasts are
increased, and our target is raised from $8.50 to $9.00 based upon our
sum-of-the-parts valuation.
Current frac spreads remain above our upwardly adjusted assumption
leaving further room for upside. Valuations are appropriate and our
distribution estimates provide for a reasonably attractive return, albeit one
that is exposed to considerable volatility in frac spreads.
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