Auvila Flash (NRG: 05/21/2018): NRG to issue $500MM of convertible senior notes due 2048 and conduct an accelerated share repurchase (ASR)

NRG announced that it intends to issue some $500MM of its senior notes due 2048 with a built-in option to convert to equity or cash or a combination of both at the option of NRG — underwriters would be granted a 15%, 30-day overallotment option
NRG has the option to redeem the notes in whole or in part starting June 1, 2025
Holders of the notes have the option to force NRG to repurchase the notes on September 1, 2025, June 1, 2033, or June 1, 2040
The proceeds of the offering is expected to go towards the repayment of other notes outstanding, and for various fees and expenses
In conjunction with this offering, NRG plans to use cash on hand to accelerate its previously announced $500MM share repurchase program. The ASR program is expected to be executed through:

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Auvila Flash on LNG (05/17/2018): LNG offers to buy remaining 7.8% of CQH that it doesn’t own for $28.24/share

As expected, Cheniere Energy Inc. (LNG) announced today that it is offering to buy the remaining 7.8% of the remaining public float in Cheniere Energy Partners L.P. Holdings LLC (CQH)
LNG is offering 0.45 of LNG for each share of CQH, which translates into an exchange price of some $28.2375/share based on LNG’s closing price on May 16, 2018 of $62.75/share
The transaction is expected to be a tax-free transaction for CQH and LNG shareholders

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DUK 1Q2018 Earnings Note (05/10/2018): DUK presents good buying opportunity but after $2.0B equity issue

Reported 1Q18 AEPS of $1.28 vs. our $1.08 and consensus’ $1.14. But, adjusting for good weather DUK would have reported $1.12
DUK completed some $1.65B in new equity for 2018 and expects complete $350MM by yearend, which we’ve modeled
Macro-economic indicators are turning up and demographics gaining; we look for these trends to continue
Investments in renewables and gas-fired generation helps DUK move away from coal and is right move
We believe DUK is on track to meet its 4%-6% AEPS CAGR through 2022 thru development of both organic natural gas projects and acquired natural gas businesses, as well as electric infrastructure projects
We believe another transformative gas-based acquisition is in the making by yearend 2020
We believe DUK presents buying opportunity driven by strong capital investment program, strengthening performance and yield

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AES 1Q2018 Earnings Note (05/08/2018): Strategy & tactics are clear but vision’s cloudy; regardless undervalued

We understand what AES is doing, but we don’t know where it’s going. We can’t answer what AES wants to be when it’s done restructuring?It used to be that AES wanted to be global IPP player.
AES reached agreement to complete troubled Alto Maipo hydro-plant in Panama
We believe improving global economy will provide strong tailwind
AES means to focus on renewables and gas plants in US, so we look for sale of DPL&IPL to fund 10GW of utility-scale solar
We continue to feel AEPS guidance through 2021 is conservative: We feel it’s closer to 13%
AES is trading as if growth is negative
Gas-to-power could be major LT growth source, particularly in Asia – reentry into China?
AES trusts its MCAC LNG strategy and energy storage projects may boost MT-to-LT growth
Achieving investment-grade-credit may be a good strategy
Issues surrounding AES, include, but aren’t limited to: 1) paying more than nominal dividend, 2) hasn’t disavowed share buybacks, 3) growth trajectory isn’t at potential, and 4) we can’t say what AES is anymore, in our view

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SRE 1Q2018 Earnings Note (05/07/2018): With Oncor closed, we look for flourishing Twin Towers strategy

With Oncor closed, we look for SRE to increase M&A and investment in TX/Gulf-Coast: Committed to $7.5B-up-to-$8.4B utility capital spending thru 2022; other than generation and R&M nothing seems prohibited, especially if it has Mexico component
2018E AEPS guidance remains unchanged at $5.30-$5.80/share
SRE is expected to grow dividend 8%-9% to match
2019 GRC filed 10/2017 w/FD expected late-2018/early-2019
We look for SRE to outperform guidance in ST, MT and LT
Within next 12-months we look for Cameron 4&5 to get FID and begin construction; ECA liquefaction also seems likely. Even Port Arthur seems likely, given MOU with KoGas.
SRE looking at asset sales potential and looks to repatriate some $1.6B from 2018-2022 w/immaterial tax expense
IEnova announced liquids terminal project; it has billions in potential opportunities
We support SDG&E’s move towards energy storage and more renewables, and SCG’s continuing emphasis on pipeline safety and reliability
Potential for LNG-to-power projects in oil- and coal-fired dominant regions like Central and South America and even Hawaii could be another future growth source

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BKH 1Q2018 Earnings Note (05/04/2018): Weather induced performance doesn’t change our thesis

Between disappointing oil and gas sales proceeds, lower 2018 guidance, expected increase in share count by yearend, and slower earnings growth-rate guidance through 2019, we believe that BKH is likely to underperform, particularly as it tries to navigate through new regulatory jurisdictions, compounded by the issue of expected increases in the interest rate environment
However, adjusting for 1Q2018 results, our estimates are forced up, which raises our NIV/share to $115/share from $110/share
Therefore, we are commensurately raising our ST-target to $65/share from $62/share
BKH maintains its lowered 2018 AEPS guidance at $3.30-$3.50
We continue to look for BKH to pivot more towards utility projects including transmission, renewables, but also generation in general, gas pipelines and other utility projects in the ST-to-MT
Also, work on reducing regulatory lag
Regulatory filings continue for various reasons that should all benefit shareholder value
1Q18 results were above expectations mostly due to colder than normal weather, which accounted for about $0.16/shares and would have reduced 1Q2018 AEPS results to $1.47 vs. our $1.41 estimate and $1.53 consensus
Power segment wins competitive bid to build 60MW wind farm for $71MM (Busch Wind Farm 2). However, management is suggesting margin on this project may be thin due to competitive nature – we suspect it’s in the high single digit ROE. In service date is estimated to be late-2019.

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CNP 1Q2018 Earnings Note (05/03/2018): We feel CNP is conservative; ENBL is sticky wicket; Vectren deal is good

Without sale of ENBL to fund Vectren Corp. (VVC) acquisition, VVC deal isn’t ST accretive, but we still like deal for MT-to-LT shareholder value
It’s now apparent that CNP doesn’t want to use ENBL to fund VCC deal, which is unfortunate. We’re apathetic re: internal spin of ENBL though curious as to purpose.
While CNP outperformed expectations for 1Q18, it’s keeping $1.50-$1.60 AEPS guidance for 2018E, which we feel is conservative
CNP’s almost $8B capital spending program forecasts 8.3% CAGR in rate base from 2017-to-2022, but earnings guidance for 2019-2020 is only 5%-7% CAGR. We believe CNP is being conservative
Appears that Enable Midstream Partners (ENBL) disposition would be through public market sales
With VVC deal we believe that CNP has made itself into a bigger target for all the right reasons, in our view
We believe demographics continue to provide tailwind. Dividend yield likely to stay strong too.

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LNG Earnings Note (05/04/2018): LNG looks to be at inflection point; makes for tempting target

Cheniere reported stellar 1Q2018 results, but much of upside performance due to excess cargos from its LNG plants prior to servicing LT SPAs
Cheniere expects positive investment decision (FID) on CCL3 in next several weeks
We like that Cheniere’s looking at ways to deploy future FCF, but not thrilled about foreign and liquids-based ventures
Midship pipeline feels right but mid-scale LNG still feels wrong
LT, Cheniere faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its 3rd-act.
As expect global LNG markets are tightening quicker than past market expectations, but in-line with our expectations
We believe CNPC contract will lead to more Chinese contracts and positive FID for SPL 6
Cheniere’s performance and LNG market fundamentals make Cheniere tempting target for large E&P players & integrated oil companies

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PCG Earnings Note (05/03/2018): Potential wildfire costs continue to pressure PCG but upside’s alluring

Wildfires causes PCG to suspended its dividend and 2018 AEPS guidance, and inverse condemnation judgements in the past cause management to prudently send adverse message to investors.
Through early 2019, we’d advise against trying to catch a falling knife, but once clarity for wildfire liabilities are known, we feel that PCG presents a strong buying opportunity, given high investment needs due to California’s green policies, strong management team, and good regulatory structure
For modeling purposes, we assume dividend suspended for 3-years then we assume $5B of equity capital spending over 5-years. This still results in NIV of some $112/share, which leads us to believe that investors will have good future buying opportunity.
PCG expects to issue some $500MM/year in new equity in 2018 & 2019. Capex plan for 2018 is unchanged at $6.3B.
For investors, higher rate base due to $800MM elimination of bonus depreciation, which accelerates rate base growth to 7.5%-8% through 2019 vs. 6.5%-7% previously
We raise our ST-Target to $40/share from $31/share but our NIV remains at $125/share ($112/share including $5B in wildfire liabilities over a 5-year period starting in 2019)

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NRG 1Q2018 Earnings Note (05/03/2018): NRG poised to take off but we’d wait for end of $1B share buyback

1Q18 AEPS was $0.52 vs. our ($0.04) and consensus $0.21 estimates, while EBITDA came in at $485MM vs. our estimate of $346MM. Upside was due to strong Retail performance, partially offset by higher interest expense.
Regardless of fundamentals, we would wait until SBP is over before buying NRG. Otherwise, NRG’s strategy, financial planning (other than SBP), debt repayment plans, and business profile are all optimized, in our opinion.
It seems SBP may be inhibiting NRG from making good investment choices
Raising ST-Target/share to $42 from $39 due to strengthening economy, asset sales, and TCJA benefit, but when SBP ends NRG is likely to lose some 10% before advancing again
NRG has done great job of realigning its strategy starting with GenOn and then its B/S management, and its strategic overhaul. We believe these are all the right moves, and we expect that these will translate into further upside.
We like that NRG is lowering its hedging levels in view of strengthening economy and commodity fundamentals
Asset sales look to close by yearend (100% of NYLD, renewables and South Central portfolio). We look for NRG to expand Retail, especially in PJM where it has excess generation relative to retail load. Sold Canal 3 for net of some $130MM.

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