In a March 8 research note, analyst John Freeman reported that Raymond James increased its target price to $24 per share from $22 and reiterated its Strong Buy recommendation on Kimbell Royalty Partners LP (KRP:NYSE), whose stock is currently trading at around $18.15 per share.
"We remain highly confident in Kimbell's long-term outlook, particularly following the recently completed acquisitions last year and the roughly $151 million deal with Phillips Energy/EnCap set to close later this month," Freeman explained.
Specifically, the analyst noted, highlights going forward are the limited partnership's (LP's) mineral interest business model, the low declines rates of its proven developed producing (PDP) reserves base and its solid track record in acquiring accretive assets. Raymond James anticipates "continued strength in operator activity on Kimbell acreage along with an improved commodity price environment," added Freeman.
He noted two major areas in which Kimbell could grow. One is acquisitions. Kimbell's management has stated it is looking to make accretive acquisitions regardless of size and currently is reviewing about 30–50 possible transactions of a smaller scale, in the $10–20 million range. However, because competition for mineral assets in key resource plays is increasing, Raymond James expects to see Kimbell making and structuring deals in this market creatively, such as partnering with smaller firms, such as in a joint venture arrangement, to improve the economics.
The second area of potential growth for Kimbell is building on its solid foundation of proven developed reserves, 33.6 million barrels of oil equivalent worth at year-end 2018, a 118% year-over-year increase. "Kimbell replaced about 9x production last year and maintains a reserve life of approximately 15 years," Freeman commented.[NLINSERT]
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Disclosures from Raymond James, Kimbell Royalty Partners LP, March 8, 2019
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Limited Partnerships may generate unrelated business taxable income (UBTI), which can create a tax liability that must be paid from a retirement account. To the extent that Raymond James is your IRA custodian, and there is potential tax liability for UBTI generated by the fund, Raymond James will take the necessary steps to pay the tax from the retirement account by working with a third party to compute the tax liability and prepare the IRS form 990-T for submission to the IRS.
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