Sempra Energy Sells JV Stake - Analyst Blog

Sempra Energy (SRE) completed the sale of its joint venture with Royal Bank of Scotland Group PLC (RBS) – RBS Sempra Commodities to JPMorgan Chase & Co. (JPM). The deal was first announced in February 2010.

Through the transaction, J.P. Morgan acquires RBS Sempra Commodities’ global metals and oil businesses, and European natural gas and power businesses. Incorporated in 2008, RBS-Sempra traded commodities ranging from oil and natural gas to metals and agricultural products.

However, Sempra Energy retained RBS Sempra Commodities’ remaining North American natural gas and power businesses. These businesses have historically generated almost half of the earnings of the JV. RBS and Sempra Energy are presently actively soliciting offers for the sale of the remaining businesses.

Sempra Energy along with its partner Royal Bank of Scotland got richer by $1.6 billion through the deal. The company’s total share of the proceeds is expected to be approximately $1 billion. This will come in good stead for the $3 billion capital expenditure plan that the company has for 2010. Sempra Energy’s businesses are capital intensive and rely significantly on long-term debt for its capital expenditures.

The company reported cash and cash equivalents of $222 million at the end of the first quarter, more than double of $110 million at year-end fiscal 2009. Long-term debt however increased to $7.2 billion at the end of the first quarter from $7.5 billion at the end of fiscal 2009.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of natural gas. Its subsidiary Sempra LNG develops, owns and operates liquefied natural gas receipt terminals serving North American markets. Sempra competes with other companies to construct and operate liquefied natural gas receiving terminals and purchase the same.

We are positive about Sempra Energy’s stable base of utility earnings along with expansion in liquefied natural gas terminals and renewable power projects in the Pacific Southwest. However, on account of volatile commodity business, tightening credit markets, and pending regulatory issues, we reiterate our Neutral recommendation on the Zacks Rank #3 Sempra Energy stock. In the near term we would advise investors to focus on its Zacks Rank #2 (Buy) peers like AGL Resources Inc. (AGL) and Chesapeake Utilities Corp. (CPK).