Citi has backed Centrica PLC's (LSE:CNA) purchase of a stake in the Grain liquefied natural gas terminal, calling the deal “good value” and supportive of long-term earnings.
Centrica will acquire 50% of National Grid’s Grain facility in a joint venture with Energy Capital Partners, valuing the asset at £1.48 billion including debt.
The UK energy group expects about £100 million in annual earnings before interest, tax, depreciation and amortisation from its share, including contributions from a fourth storage tank due to come online by the end of this year.
The transaction will be funded with £1.1 billion of non-recourse project finance and £200 million of equity for Centrica’s share.
Citi calculated the purchase price at roughly 7.4 times EBITDA, noting the terminal’s long-term contracted revenues. Grain is fully booked until 2029, more than 70% contracted until 2038, and over 50% contracted until the mid-2040s.
The US bank said the acquisition complements Centrica’s existing portfolio of UK strategic gas assets, which includes the Rough gas storage site and the Morecambe gas field, and should deliver “visible, long-dated cashflows” with potential upside from efficiency gains.
It expects the deal to be earnings accretive from completion.
The sale also fits with National Grid’s strategy to recycle capital, though Citi retains a “neutral” stance on that stock.
For Centrica, Citi reiterated its “buy” rating and £1.85 target price. The shares were flat at 168p.