Exhibit (c)42
Citigroup Global Markets Inc. | Global Energy Group October 2019 Research Update
Research Views: Price Targets and Valuation ($mm unless otherwise noted) EBITDA Price Targets 2020E 2021E Date Prior Current % Change Prior Current % Change Prior Current % Change Analyst Commentary Valuation Methodology While our base case is that Blackstone and TGE reach agreement on Blackstone’s We derive our $19.50 price target for TGE take-private proposal for $19.50/share, based on Blackstone’s take-private investors have asked our view of a proposal. On asum-of-the-parts (SOTP) standalone value for TGE. Although we are basis, our price target assumes target RBC Capital Markets 10/24/2019 $19.50 $19.50 0.0% $909 $815 (10.3%) $775 $775 0.0% not changing our estimates, we see multiples to our 2020 EBITDA estimates for downside risk. Based on our analysis, we each of Tallgrass’ business segments of10-believe a standalone TGE valuation to 14x. Our base case implies a 12.5x multiple be closer to~$14-15/share, close to to our 2020 EBITDA estimate and a 11.3% TGE’s share price at the time of the take- target yield private proposal announcement We believe near-term trading activity will reflect expectations pertaining to a potential deifinitive agreement, and note TGE’s current share price of $19.39 represents a Revised $20 price target assumes an 0.6% discount to the initial offer price, or Barclays 10/15/2019 24.00 20.00 (16.7) 895 805 (10.1) 954 818 (14.3) 11.1% yield on our 2021E DPS of $2.22, 2.2% discount assuming one quarter of which backs into 11.5x 2021E EBITDA dividend carry On a standalone basis, we believe shares are fairly valued trading at 11.5x 2021 EV/EBITDA, and maintain our EW rating With our lower contribution estimates for SOTP valuation methodology valuation is Pony Express and the likelihood of a $18.28/share and applies an average potential dividend cut under that scenario, EBITDA multiple of ~11x to 2020 estimates our implied fundamental target price would Discounted DCF valuation is $20.94/share be ~$19/share, which is largelyin-line with at 10% Ke Citi 10/14/2019 23.00 19.50 (15.2) 902 819 (9.2) 894 783 (12.4) our updated target price of $19.50/share (or Discounted Cash Distribution valuation is the takeout offer) $16.81/share. Assumes declared dividends With the lower contributions from Pony will decrease from $2.18/share in 2019 to Express, we are assuming aone-time $1.68/share in 2024, following a 25% dividend cut of ~25% to an annualized dividend cut in 1Q20; 10% cost of equity and $1.68/share taking place in 1Q20. a 0% perpetuity growth rate Price target is based on the private equity sponsors’ announced take private proposal We are lowering our price target to of $19.50 / share Wells Fargo Securities 10/14/2019 25.00 20.00 (20.0) 955 911 (4.6) 974 943 (3.2) $20/share from $25/share based on the Risks to the shares trading below our announced take private proposal price target include(1) re-contracting risk at REX and PXP, (2) commodity prices, and (3) capital market access We are downgrading Tallgrass Energy, LP Rounded target price is based on to Hold from Buy and maintaining our $20.00 Blackstone’s take private offer of $19.50 Stifel Nicolaus 10/10/2019 26.00 20.00 (23.1) 869 836 (3.8) NA NA NA target price…we do not believe it goes plus small upside (+2.5%) for a potential substantially higher given recontracting sweetener, resulting in a $20.00 target price concerns on TGE’s assets 1
Research Views: Price Targets and Valuation (Cont.) Price Targets 2020E 2021E Date Prior Current % Change Prior Current % Change Prior Current % Change Analyst Commentary Valuation Methodology Tudor Pickering Holt & 10/9/2019 $24.00 $19.50 (18.8%) $902 $782 (13.3%) $765 $729 (4.7%) -—- Co. We do not think the current asset base is advantageously positioned with an East- West gas pipeline (Rockies Express) when $24/sh PT is calculated by applying an Piper Jaffray 8/28/2019 24.00 24.00 0.0 914 914 0.0 934 934 0.0 gas demand growth is focused on the Gulf 11.0x multiple to our forecasted 2020 Coast. Furthermore, there isre-contracting EBITDA risk with the Rockies Express and Pony Express pipelines in ‘20 Based on our current estimates, the offer has a 2019 EBITDA multiple of 9.6x and a We value TGE using a five-year dividend NTM EBITDA multiple of 9.8x. The increase MUFG Securities discount model (DDM), which is based on 8/27/2019 24.00 20.00 (16.7) 940 940 0.0 NA NA NA in the multiple is driven by current Americas distributions for the next five years as well assumptions related to recontracted rates as on a terminal value on key pipelines being lower than the current rates and negatively impacting EBITDA M&A Valuation (15% weighting): 12.0x We remain Neutral on TGE, but lower our precedent midstream PE transaction estimates and our target price — despite multiple to forecasted 2020 EBITDA to incorporating an M&A component into our determine the theoretical M&A value target price primarily to reflect lowerre- Baseline Valuation (85% weighting): contracting rates on the company’s Pony Goldman Sachs 8/7/2019 26.00 18.00 (30.8) 1,135 1,006 (11.4) 1,139 997 (12.5) Lowered TGE target multiple to 10x versus Express Pipeline (PXP) prior target multiple of 10.5x applied to 2020 We believe TGE’s valuation warrants a EBITDA estimate—aone-turn discount to discount givenre-contracting risk for REX baseline multiple for the group of 11x—due and PXP, along with weakening leverage to higherre-contracting risk at both PXP and metrics REX Mean $23.94 $20.06 (16.2%) $936 $870 (7.0%) $919 $854 (7.1%) Median 24.00 20.00 (16.7) 909 836 (8.0%) 934 818 (12.4)
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