Citi: Cheniere Energy LP, LLC Are Buys

In a report published Monday, Citi analyst Faisel Khan resumed coverage of Cheniere Energy, Inc. LNG with a Neutral rating and a price target of $72. The analyst maintained Buy ratings on both Cheniere Energy Partners LP CQP and Cheniere Energy Partners LP Holdings LLC CQH. The price targets for CQP and CQH were reduced from $42 to $40 and from $30 to $28, respectively, to reflect lower spot LNG pricing and "the uncertainty associated with Cheniere's ability to capture new long-term supply contracts in the current market environment." Analyst Faisel Khan believes there is "low likelihood" of new long-term contracts for liquefaction capacity out of North America in the next 12 months. "We believe there will be an excess supply relative to demand of ~25mt in 2018…We are cutting our forecast for spot/short-term sales of LNG to a 10% slope to Brent through 2020." The price target for CQP has been reduced to reflect the deferral of Train 6 at Sabine. "We continue to believe unit holders in CQP have one of the best equity investments in global LNG. Unit holders have a first call on the equity cash flows from Sabine Pass, which we believe is the best positioned global LNG export terminal in the world," Khan wrote. Khan expects CQH to "eventually trade" at a similar value as CQP, with the only difference being "the dividend tax leakage to CQH." The tax leakage to the dividend is currently estimated at 15 percent and a liquidity discount of 15 percent. "Over time, we believe this liquidity discount will disappear," the report added.