Deutsche Bank's Mehrotra Downgrades Dynagas: Here's Why

Deutsche Bank’s Amit Mehrotra downgraded the rating on Dynagas LNG Partners LP (NYSE: DLNG) from Buy to Hold, while reducing the price target from $25 to $9.

Mehrotra explained that the downgrade in the rating was due to expectations of limited upside to the stock valuation and a significant derating in the MLP segment, rather than company-specific issues, given that management has been executing according to plan.

The company reported its 4Q results in line with the expectations, which the analyst stated was not surprising, given that there was high visibility into Dynagas’ cash flows.

Management reaffirmed its intent to recommend a quarterly increase in distribution to the Board, of 4-6 percent, starting 1Q.

According to the Deutsche Bank report, “The increase reflects the successful drop down of LNG carrier “Lena River” for $240M, which was funded primary with new debt and preferred units.”

This distribution growth would imply annualized distribution of $1.77 per unit in 2016, which translates to 20 percent yield on current share price.

However, Mehrotra expressed uncertainty regarding the company’s mid-term outlook, saying that Dynagas would be unable to influence drop down in the current environment, while management’s visibility beyond 2017 was limited, with 6 of the company’s LNG charters due to expire in 2017.