Energy Transfer LP

ET Details

Internal Reorganization: Energy Transfer LP (NYSE: ET) is a premium provider of midstream energy services. The company holds direct and indirect equity interests in Energy Transfer Operating, L.P. (NYSE: ETO), Sunoco LP (NYSE: SUN) and USA Compression Pertners, LP (NYSE: USAC), all of which are limited partnerships engaged in diversified energy-related services. On 5 March 2021, Energy Transfer LP announced that it is going to undertake an internal reorganization by causing ETO to merge with ETO Merger Sub LLC, with ETO surviving as a wholly-owned subsidiary of ET.

Merger with Enable: On 17 February 2021, the company announced that it has entered into a definitive merger agreement to acquire Enable Midstream, LP. As per the terms of the agreement, Enable Midstream’s unitholders are expected to receive 0.8595 units of Energy Transfer per unit. The merger is expected to provide $100 million of operational/cost synergy opportunities to ET. On 22 February 2021, Rigrodsky Law, P.A., a Delaware-based law firm, announced that it has started investigating Enable Midstream, regarding possible breaches of fiduciary duties and other violations of law related to the merger agreement with ET.

FY20 Result Highlights: For the year ended 31 December 2020, ET reported total revenue of $38,954 million and an operating income of $2,980 million. Adjusted EBITDA for FY20 stood at $10,531 million, down by 5% on the previous, primarily due to the impacts of lower volumes and market prices among several of the company’s core operating segments resulting primarily from COVID-19 related demand reductions.

2020 Full-Year Adjusted EBITDA by Segment (Source: Company Reports)

Key Risks: The company is exposed to the risks related to the fluctuations in the price and demand of oil and gas. The company is also exposed to the risks related to its ongoing merger with Enable Midstream as there is an investigation going on regarding the possible breaches of fiduciary duties and other violations of law related to the merger agreement.

Outlook: Looking ahead, the company is focused on leveraging its expansive footprint to drive operational efficiencies and optimize assets. ET expects positive free cash flow in 2021 after growth capital and equity distributions. For FY21, the company expects its adjusted EBITDA to be in the range of ~$10.6-$11.0 billion.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock has provided a return of 12.93% in the last three months. The stock is currently trading above the average 52-week price level range of $3.75-$9.55. On the technical analysis front, the stock has a support level of ~$6.07 and resistance of ~$8.63. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of high single-digit (in % terms). We believe that the company can trade at a slight discount to its peer average, considering the impact of COVID-19 pandemic, negative ROE, while also taking into account the that the company has been trading at a discount in the past 3-years over its peer average. We have taken peers like Kinder Morgan Inc (NYSE: KMI), Enterprise Products Partners LP (NYSE: EPD), Plains All American Pipeline LP (NASDAQ: PAA), etc. Considering the company’s current trading level, ongoing investigating regarding possible breaches of fiduciary duties and other violations of law related to merger agreement with Enable Midstream, and associated key risks, we give an “Avoid’ rating to the at the closing price of $7.77, down by 4.55% as on 18 March 2021. Investors with high-risk appetite may take the position in the stock.

ET Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Provident Financial Holdings, Inc.

PROV Details

Q2FY21 Result Highlights: Provident Financial Holdings, Inc. (NASDAQ: PROV) is the holding company of Provident Savings Bank, F.S.B. that serves consumers and small to mid-sized businesses in the Inland Empire region of Southern California. For the December 2020 quarter, the company reported net income of $1.18 million, down from net income of $2.40 million in the previous corresponding period (pcp), due to lower net interest income and lower non-interest income. Return on average assets stood at 0.40% in Q2FY21, down from 0.87% in pcp. Efficiency ratio for Q2FY21 stood at 80.31%, up from 68.78% in pcp. As at 31 December 2020, the company had cash and cash equivalent of ~$74 million. The company has paid a quarterly cash dividend of $0.14 per share on 11 March 2021.

Financial Data for Q2FY20 (Source: Company Reports)

Key Risks: The company is exposed to the risks and uncertainties caused by the COVID-19 pandemic. Further, the company is also exposed to the risk related to the changes in the monetary policies of the country.

Outlook: Currently, the company is focused on managing the loan portfolio and assist its customers through the ongoing uncertainty surrounding the COVID-19 pandemic. With the recovery of general economic conditions, the company expect to see improvement in its operating fundamentals. The company seems well-capitalized and well-positioned for the transition to an improving economic environment.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has provided a return of 11.47% and in the last six months it has provided a return of 38.92%. The stock is currently trading towards its 52-weeks high price of $17.79. On the technical analysis front, the stock has a support level of ~$15.19 and resistance of ~$17.31. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with limited upside. We believe that the company can trade at a slight premium to its peer median, considering the recovery in the general economic conditions, higher book value per share, while also taking into account that the company has been trading at a premium in the past 3-years over its peer median. We have taken peers like Bank of Marin Bancorp (NASDAQ: BMRC), Banc of California Inc (NYSE: BANC), Heritage Financial Corp (NASDAQ: HFWA), etc. Considering the company’s decent returns in the last six months, current trading level and valuation, we are of the view that most of the positive factors has been factored in at the current juncture. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the closing price of 16.81, down by 0.88% as on 18 March 2021.

PROV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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