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Analysts see short-term value in Cheniere holding company after failed merger

Credit Suisse analysts lowered their target for Cheniere Energy Inc. after the termination of the company's attempted takeover of its master limited partnership, saying the MLP and its holding company are where investors can find short-term upside in the Cheniere complex, the only major U.S. exporter of LNG.

"We came away surprised by the termination of the acquisition," Bhavesh Lodaya and colleagues said in a Dec. 12 note. "While this is a setback for the new management, we continue to believe that an eventual simplification of the Cheniere group is likely." Lodaya expects that Cheniere Energy will buy out Cheniere Energy Partners and Cheniere Holdings as soon as end of 2017.

Cheniere on Dec. 9 announced that it ended talks to buy out the remainder of Cheniere Energy Partners LP Holdings LLC, which owns the majority limited partner interest in the MLP Cheniere Energy Partners LP.

The analysts set their target price for Cheniere at $52, down from $54, citing the terminated deal and higher interest expenses related to its subsidiary Corpus Christi Holdings LLC's $1.5 billion senior notes offering.

The simplification the analysts still expect to happen would give Cheniere Energy access to 100% of fixed cash flows under one umbrella, from five trains of Sabine Pass Liquefaction LLC and two trains at Corpus Christi LNG. The analysts said such a move would improve capital costs and reduce the overall risk profile of the combined business as Cheniere Energy gets more wiggle room to eliminate "restrictive inter-company contractual obligations."

At the same time, the analysts raised Cheniere Holdings to "outperform" from "market perform," making a case that the holding company provides shorter-term investors an attractive conduit to snap up stakes in Cheniere's business. "For the next 12-18 months, we consider [Cheniere Energy Partners LP] and now, also [Cheniere Energy Partners LP Holdings] as the preferred way to invest in the Cheniere family."

The holding company is set up for roughly 30% in near-term total returns, the analysts said. Based on those expected returns, the group revised the holding company's target price to $28 from $24.

Lodaya and his team noted that Cheniere Energy has upside for longer-term investors with a more bullish view on oil prices. "[Cheniere] provides a lot of optionality in terms of future projects. We don't give them value today because ... [Cheniere's] real value is when some of these projects come to fruition. A long-term investor who is bullish on some of these future projects that management has been targeting can choose [Cheniere]," Lodaya explained in an interview.

Analysts at Raymond James Financial Inc. agreed on the possibility of a simplification in the longer run. "Cheniere may ultimately pursue a more comprehensive simplification by consolidating down to a single publicly traded entity versus three currently," the analysts said in a Dec. 9 note, referring to Cheniere, Cheniere Energy Partners and Cheniere Holdings.