ENLK

Thank You for the Victory Lap Barron’s!

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For those that saw the reference to our recent article in Barron’s and the unfortunate, derogatory counter-punch by another author, we appreciate the support and congratulations! The Barron’s article highlighting our work was a victory lap on our call on Kinder Morgan, or we think most should have interpreted it as such. The recognition was well-received by existing members and interested new members alike! How to interpret our call on Kinder Morgan >> As many of you know, however, the call on Kinder Morgan has been off the table for some time now. We had recently moved to “neutral” on Kinder Morgan (see here), after shares collapsed from $40 to $29, which is our current fair value estimate of the firm … Read more

Understanding Your MLP’s Financially-Engineered Equity Value

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For background on this topic, please read “5 Reasons Why Kinder Morgan Will Collapse,” and “5 More Reasons Why Kinder Morgan Will Collapse.” In this article, we will synthetically create the equivalent of a master limited partnership (MLP), called iNewCorp with Kinder Morgan’s financial profile, from scratch with effectively no capital at all, with only a strong credit rating. In such an example, we’ll also explain how valuation techniques cannot ignore growth capital in the valuation equation of MLPs or other midstream corporates by pricing them on a multiple of “distributable cash flow” or on the dividend/distribution that follows it. We’ll do so by contemplating the value of a company that has a “distributable cash flow” stream requiring maintenance (and/or … Read more

FAQ: Regarding your article, “Warning: The Master Limited Partnership Business Model May Not Survive…”

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Q: Regarding your article, “Warning: The Master Limited Partnership Business Model May Not Survive,” – what are you basing your comments on financial engineering the dividend on? It seems to me that Energy Transfer Equity has enough free cash flow to cover its dividend with a 1.2x coverage ratio. Am I missing something? A: Thank you for your question. Most master limited partnerships and midstream corporates do not cover their distributions and dividends, respectively, on a traditional free cash flow basis, as measured by cash flow from operations less all capital spending. That means that such payouts are being financed in part, some more than others, from the cash flow from financing section of the cash flow statement, hence the term financially-engineered. … Read more

3 Anomalies Across Pipeline Equities

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Kinder Morgan’s Credit Should Be Junk Status The corporate’s investment-grade credit rating does not add up. On a reported basis, adjusted for impairments, our estimate for Kinder Morgan’s (KMI) leverage is 7 times annualized first-half EBITDA, nearly a half turn greater than that of perhaps its closest peer Energy Transfer Equity (ETE), which is rated Ba2/BB/BB (Stable) by the credit rating agencies. That’s two full notches below the lowest level of investment grade and Kinder Morgan’s credit rating, despite Kinder Morgan’s dividend obligations being $350 million more during the first half of this year alone (~$750 million annualized) relative to Energy Transfer Equity, and its absolute level of debt standing above any other on this list. Kinder Morgan’s plans to … Read more

Dividend Increases for the Week Ending July 24

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Below we provide a list of firms that raised their dividends during the week ending July 24. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week BancorpSouth (BXS): now $0.10 per share quarterly dividend, was $0.075. Bar Harbor Bankshares (BHB): now $0.255 per share quarterly dividend, was $0.25. Baylake Corp (BYLK): now $0.09 per share quarterly dividend, was $0.08. BBCN Bancorp (BBCN): now $0.11 per share quarterly dividend, was $0.10. B&G Foods (BGS): now $0.35 per share quarterly dividend, was $0.34. Chemical Financial (CHFC): now $0.26 per share quarterly dividend, was $0.24. … Read more

Midstreams Going C-Corp, Should SEC Disallow the Measure Distributable Cash Flow?

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Key Takeaways It’s important to differentiate the concept of enterprise free cash flow valuation and the idea of capital-market dependence. The uncertainty of the MLP business model remains, as it is clear operators are shunning the MLP business model preferring C-Corps instead. According to work from Global X Funds, now 40% of the energy infrastructure market cap consists of C-Corps, up considerably from just 15% at the end of 2014. Though many simplifications have come with implied distribution cuts, the primary reason for the rise in C-Corps across the midstream space has been the rationalizing of excess MLP valuations to enterprise free cash flow assessments. We encourage the SEC to consider disallowing the use of distributable cash flow, as it … Read more

Dividend Increases/Decreases for the Week Ending April 24

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Below we provide a list of firms that raised their dividends during the week ending April 24. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week ASML Holding N.V. (ASML): final EUR 1.35 semi-annual dividend, was EUR 1.05. Canadian Banc Corp (CNDCF): now CAD 0.0517 per share monthly dividend, was CAD 0.0367. Centamin plc (CELTF): interim $0.0600 dividend, was $0.0400. Delek Logistics Partners (DKL): now $0.89 per share quarterly dividend, was $0.885. Dime Community Bancshares 5.50% Fixed Rate Non-Cum Pptl Prfd Stk, Series A (DCOMP): now $0.38 per share quarterly dividend. Dividend … Read more

In The Name of Our Independence and Integrity…For Goodness Sake

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Last week, an article was published that associated us with hedge funds, questioned our integrity as honest hard-working equity analysts with years of experience, dismissed our fantastic performance track record and Brian Nelson’s Chartered Financial Analyst designation, tarnished our independence as an equity research provider, and offered another author in free form the opportunity to misinterpret our completely independent and unbiased thesis and address it in ways of their preference, belittling our entire team at Valuentum and doing irreparable harm to our brand and image, in our vew. We were willing to let it go, but then another article ran in the print edition Saturday. First, let’s address the online piece, and the print piece subsequent to this. Valuentum’s thoughts … Read more

MLPs Breaking Out But More Questions

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As we stated when we added exposure to the energy sector October 6 (see here), we’d be fools not to acknowledge the technical breakout in units of master limited partnerships the past few weeks. The group still has a long way to go to get back to “even,” but for the sake of retirees who are “DRIPping” into these equities, we sincerely hope some losses can be recuperated. Our experience tells us, however, that the road won’t be an easy one, but we are hoping chartists will be piling into units in the coming days. Fundamental investors may not be aware of this “technical” catalyst to come, but the breakout could be a big one. MLP investors have lost so … Read more