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The Future of Crosstex Energy Looks Bright

June 21, 2013 | About:
Crosstex Energy Inc. (XTXI) is engaged, through its subsidiaries, in the gathering, transmission, processing and marketing of natural gas and natural gas liquids (NGLs). The company connects the wells of natural gas producers in the geographic areas of its gathering systems in order to gather for a fee or purchase the gas production, processes natural gas for the removal of NGLs, transports natural gas and NGLs and ultimately provides natural gas and NGLs to a variety of markets. In addition, it purchases natural gas and NGLs from producers not connected to its gathering systems for resale and markets natural gas and NGLs on behalf of producers for a fee.

Its partnership interests consist of 19.7% limited partner interest in Crosstex Energy LP (the Partnership), as of Dec. 31, 2012, and 100% ownership interest in Crosstex Energy GP LLC, the general partner of the Partnership, which owns a 2.0% general partner interest and all of the distribution rights in the Partnership.

Crosstex Energy LP is a midstream natural gas partnership that operates about 3,500 miles of pipeline, 10 processing plants, and 4 fractionators. Additionally, it is engaged in the operation of barge terminals, rail terminal, product storage facilities and brine water disposal wells, apart from having an extensive truck fleet.

Financials and Growth Oppotunities

Crosstex Energy delivered a positive 34.8% earnings surprise – the first outperformance in four quarters – propelled by solid contribution from all business segments in the recently reported first quarter on May 8. Natural gas transporter and processor Crosstex Energy LP (XTEX) has priced a public offering of 7,200,000 common units at $20.33 a piece, with a 30-day over-allotment option for an additional 1,080,000 units. The master limited partnership (MLP) plans to use the proceeds from this offering to finance capital expenditures associated with pipeline projects – including the 130-mile, 12-inch Cajun-Sibon natural gas liquids pipeline expansion – and for general partnership purposes.

The Partnership’s first-quarter 2013 gross operating margin of $104.7 million increased $4.9 million compared with a gross operating margin of $99.8 million for the first quarter of 2012. The improvement took place primarily due to the acquisition of assets in the Ohio River Valley, greater contributions from the Partnership’s Permian Basin assets and increased natural gas liquids (NGL) fractionation and marketing activities. The gross profit margin of Crosstex Energy is quite low compared to the industry average. Its gross profit margin currently is at 12.70% and net profit margin, which is again below the industry average, is at 4.66%. But the situation is expected to change next year as the company is venturing into areas that has got strong growth potential. Lack of growth and new investments, declining gross profit margins, low net profit margins, and lower cashflows have posed some problems to this company for the last few years. All the points are not against Crosstex Energy as it has a strong distribution yield at 7.5% and a revenue growth of 0.7%. This revenue growth is above the industry average.

Net operating cash flow for the company is $59.32 million and is lower than the industry average. The recent project will add $10 million in fee-based cash flow will add up to this number.

In 2012, it generated $214 million in adjusted EBITDA. By 3rd or 4th quarter this year the phase one of the Cajun-Sibon expansion in the Gulf Coast market is set to be fully operational. Phase one is expected to add upto $40-$45 million EBITDA. In 2014 phase two is expected to get completed and is all set to add upto another $75-$85 million EBITDA. These investments are going to reap in good dividends to investors and garner in more cashflows. The EBITDA will surge to a higher level due to these investments. Growth of the company is going to get higher with its next $1 billion investment. From the first $1 billion in new investments distribution growth will be quite high (21%) this year.

In 2012 it started its $1 billion investment plan and with product diversity and geographical diversity the company is expected to record a significant growth. Crosstex Energy has an aggressive investment approach which will definitely provide benefits to its shareholders and investors. It may outperform its peers in the time to come with its new investments and strong yield.

To Put The Pieces Together

Crosstex Energy has made major investments into new business opportunities and is diversifying continuously in order to create stability and growth. Crosstex Energy's recent investments will create shareholder value and will propel its distributions and dividend. It is bringing new diversity to the company's products by actively expanding its Louisiana business. Crosstex Energy has carved a niche for itself as against its peers by maintaining its current commodity exposure while increasing fee-based income operations, instead of cutting what commodity exposure it does have. Its new investments are all set to provide stable income.

The company is investing in new projects which will help in garnering significant cashflows and investors looking for growth oriented companies may consider Crosstex Energy.

Rating: 4.0/5 (6 votes)


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