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Lehigh Gas Partners LP (LGP) made its public debut on Thursday, October 25th. Shares of the limited partnership ended their first day with gains of 1.1% at $20.23 per share.

The Public Offering

Lehigh Gas Partners is a limited partnership which focuses on the wholesale distribution of motor fuels and real estate used in the distribution of these fuels. For the full year of 2011, the company distributed 562 million gallons of motor fuels to 575 sites. Lehigh's activities are based in the Northeast of the US.

Lehigh Gas sold 6.0 million shares for $20 a piece. Lehigh raised $120 million in gross proceeds in the offering process. Based on the offer price of $20.00, the partnership is valued at $300 million.

The offering took place at the midpoint of the preliminary offer range. The firm and its bankers set a preliminary $19-$21 price range. All shares were sold by the partnership.

In total, 40% of the limited partnership's shares outstanding were offered. At Friday's closing price of $20.84 per share, the firm is valued at $313 million.

The major banks that brought the company public were Raymond James, Oppenheimer, Janney Montgomery and Wunderlich Securities.

Valuation

Lehigh Gas Partners distributes motor fuels to some 728 sites, as of June 2012. This includes 120 sites leased from an affiliate of Getty in May of this year. The company is one of the largest independent distributors for Exxon Mobil, BP, Shell and Valero. Some 229 sites are owned by independent dealers, 283 sites will be operated with LGO, and 149 sites are owned or leased by the partnership.

The partnership reported total revenues of $1.63 billion for 2011, up 36.0% on the year before. The company reported a net profit of $9.9 million, compared to a loss of $5.0 million the year before. Income from continuing operations rose from $1.6 million in 2010 to $10.8 million in 2011.

For the first six months of 2012, the partnership generated revenues of $874.1 million, up 11.2% on the year. The company reported a net loss of $1.8 million for the period, compared to a profit of $2.0 million last year.

Lehigh intends to use the $120 million of gross proceeds of the offering to repay $57.9 million of debt outstanding under the a new credit facility. The company will use another $47 million to pay off mortgage notes and make a cash distribution to Topper Group as a reimbursement for capital expenditures, among others.

The partnership operates with $2.0 million in cash and equivalents. Lehigh has $158.7 million of long term debt outstanding, resulting in a net debt position of almost $157 million. The net debt position will fall to an estimated $95 million after the offering.

Based on a full year revenue estimate of $1.8 billion, the market values the firm at 0.2 times annual revenues. The company is expected to break-even for the full year; however, operating cash flows are expected to be positive. Based on 2011's annual EBITDA of $34.4 million, this values the firm at 9 times EBITDA.

Investment Thesis

The offering of Lehigh Gas Partners is a modest success. Shares rose 1.1% on their first trading day, and rose another 3.0% in Friday's trading session. As such, shares are trading some 4.2% above the midpoint of the initially guided price range.

Lehigh intends to make a minimum quarterly distribution of $0.4375 per share, for a current dividend yield of 8.4%.

The sentiment for energy limited partnerships has been very good, with many similar offering in recent weeks. In September, Summit Midstream Partners (SMLP) and Susser Petroleum Partners (SUSP) went public. On Friday, MPLX LP (NYSE:MPLX) had a successful public debut.

Limited Partnerships are special investment cases. Before investing, investors should consider the tax implications and specific risks to investing in limited partnerships. The current dividend yield of 8.4% of Lehigh Gas Partners LP is very generous, even for limited partnerships.

With interest rates at historically low levels, investors are searching for yield. The yield of the partnership is very high. The company has sufficient cash flows to support the dividend payout, and operate with modest leverage.

I remain on the sidelines despite the high dividend yield of the partnerships. The limited size of the company prevents me from investing in the partnership.

Source: Lehigh Gas Partners LP - Boom In Energy Limited Partnership Continues