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Once considered trouble, Gas Natural now 'attractive' investment, analyst says

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Once considered trouble, Gas Natural now 'attractive' investment, analyst says

Not long ago mired in investigations and in-fighting, has transformeditself into a "very attractive" small-market-capitalization utility, accordingto an April 8 analyst note.

Wunderlich Securities Inc. gave Gas Natural a "buy"rating with a fair value of $9.50, compared with the company's share price of $7.58as of the market close April 8.

"The company is leveraging its utility management operationand investment experience to increase market penetration while maximizing its allowablereturns," the analyst note said. "Continued investment not only improvesGas Natural's fundamentals, but also enables the company to maintain higher qualityfacilities that drive higher levels of productivity and customer service."

Gas Natural operates in six states in the West, Midwest, Northeastand Mid-Atlantic, which Wunderlich noted exposes the company to a wide array ofeconomies and regulatory environments. The company is also seeking out acquisitionsthat are in keeping with Gas Natural's core business model.

"The company's acquisition targets are properties with lownatural gas penetration with potential to increase its market share at the expenseof alternative fuel sources," the Wunderlich analyst note said. "Thereare additional acquisition opportunities to add to its rate base by acquiring assetsnear existing operations."

In late 2013, Gas Natural came under heavy scrutiny at the Public Utilities Commission of Ohio,which found evidence that the company had poor internal controls separating regulatedand nonregulated entities and its Ohio utilities had been using practices that resultedin unjustifiably  high gas costs for customers.

An audit later found that Gas Natural's Ohio utilities had records to benefit theparent company, among other significantexamples of mismanagement.

Meanwhile, the company ousted its chairman and CEO and instead put the former leader's . The ex-CEO denigratedthe company publicly and to its shareholders; physically assaulted a member of the board and outside counsel, accordingto a regulatory filing; and pressed charges against the company.

But a lot has changed since then. Gas Natural has revised itsinternal policies, improvedits relationship with its regulatorsand sold off some of its noncore businesses. Earlier in 2016, the company proposedadditional separationbetween its regulated and nonregulated businesses. Gas Natural on April 5 also announcedthat it was implementing a new dividend policy that the company said is more inline with its growth plans.

The Wunderlich note said that even though the company loweredits annual dividend from 54 cents to 30 cents, shares still yield 4.2%, about 30%higher than peers' yield.