Wednesday, September 8, 2010

Citigroup (NYSE:C) Initiates Coverage on Chesapeake (NYSE:CHKM)

Citigroup (NYSE:C) has initiated coverage on Chesapeake Midstream Partners, L.P (NYSE:CHKM), one of a coterie of financial institutions which have been attracted to the company.

Citi started off with a "Buy" rating on the company, which transports natural gas from the well head to the pipelines of the companies it serves. Their price target is $28.50.

It's largest customers are Chesapeake Energy (NYSE:CHK) and Total (NYSE:TOT)

Chesapeake Midstream is a venture between Chesapeake Energy and Global Infrastructure Partners LP.

Citi particularly likes the fee-based contracts of Chesapeake, which provides a steady cash flow which has little risk to commodity price fluctuations.

Chesapeake Energy and Total have a minimum volume commitment with Chesapeake Midstream which is contracted over a period of ten years, and increases annually through 2018.

Operating in a low cost region, the company should be able to enjoy solid margins which won't be affected by declining prices of natural gas because of the structure of their revenue.

Citi said even with all that positive for the company, it's probably their relationship with Chesapeake Energy which will be most beneficial, and there is some risk if Global Infrastructure Partners LP were to leave the venture, although that would probably be more of a weight on the share price than risk to the business.

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