SMLP

Chesapeake Energy’s Pain Indicates Nothing “Safe” About Energy MLP Distributions

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Summary There is nothing “safe” in the stock market, and given the track record of the distributions of pipeline MLPs, there is nothing “safe” about pipeline MLP distributions. The MLP business model continues to be phased out, a trend that we anticipated when we made our bearish call on the group in June 2015. Chesapeake Energy’s pain is a yet another reminder of the pipeline MLP group’s exposure to energy resource pricing through the health (or rather ill-health) of its customer base. We continue to encourage pipeline operators to disclose free cash flow (cash flow from operations less all gross capital spending) prominently in press releases, alongside other industry-specific metrics. Investors of Chesapeake could get completely wiped out in a … Read more

Tallgrass Energy’s Growth Runway Shorter Than Expected

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Image Source: Tallgrass Energy LP – IR Presentation By Callum Turcan Valuentum’s High Yield Dividend Newsletter portfolio parted ways with Tallgrass Energy LP (TGE) on August 1, as we wanted to reduce our exposure to the midstream space. We don’t like TGE as much as we once did and think it’s best to move on to better opportunities. Please note Blackstone Group Inc (BX), through affiliates of Blackstone Infrastructure Partners, closed its purchase of Tallgrass’ general partner in March 2019 which included those parties acquiring a 44% economic interest in Tallgrass. In 2018, Tallgrass reorganized as a C-Corp which we were very supportive of. Additionally, the midstream company has been very free cash flow positive historically (when defined as net … Read more

News Roundup: Tesla’s Musk, Department Stores, Summit Midstream, Cracker Barrel, Home Depot, GE and More

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No changes to simulated newsletter portfolios By Brian Nelson, CFA There’s never a dull moment in the Tesla (TSLA) story. Just when we thought things were getting back to “normal,” Tesla’s CEO Elon Musk has been hit with a contempt charge for a tweet that allegedly violated his prior deal with the SEC. We don’t think the tweet was a big deal, by itself, and it may have included content from a prior conference call, but given Musk’s prior behavior, including being outspoken about not having any respect for the SEC, he doesn’t have much wiggle room with the authorities. From our perspective, Musk is in now in some serious hot water. We’ve always viewed Tesla as “uninvestable,” not necessarily … Read more

Understanding the Phenomenon of “Price Risk” in High Yield

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  Image Source: Julien Carnot We want you to learn about a unique risk innate to the high yield space like the back of your hand. We’ll explain the “information contained in prices” and talk about what you should be on the lookout for, the “avalanche effect.” Order the High Yield Dividend Newsletter here. — By Brian Nelson, CFA — I received a question from a dear member of ours, and I think it may be helpful that I share the response. The question had to do with why we may be ultra-cautious on high-yielding stocks that are facing considerable price declines. The risk described below makes the high yield space uniquely different than other equity strategies, in our view, … Read more

MLP Speak: A Critique of Distributable Cash Flow

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–> Handout 1: Pitfalls of Distribution Yield Analysis (pdf) –> Handout 2: Linking P/DCF to Enterprise Free Cash Flow Valuation (pdf) Let’s talk about a controversial metric that is used in master limited partnership (MLP) reporting. Just how useful is it, and should it be allowed? By Brian Nelson, CFA It’s been a few years since the fallout in the prices of most master limited partnerships (AMLP), but to me, it still feels like yesterday. We continue to have many concerns about the longevity of the business models of MLPs, and we maintain our view that the operating structure will be challenged over the long haul. New equity and debt funding (issuance) continues to, in part, fuel the distributions of most MLPs, … Read more

Taxes and the Distressed MLP Investor

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Image show above: Performance of the Alerian MLP ETF. “Perhaps the worst thing about MLPs is that investors can spend more time doing and thinking about tax-related items than actually evaluating the businesses of the underlying entities. This could result in poor investment decisions.” – Brian Nelson, CFA By Brian Nelson, CFA What a sensitive topic for many… Our team presented at the Chicago chapter of the American Association of Individual Investors (AAII) last weekend. It is always an honor and a privilege to have the opportunity to present to such wonderful people! They ask so many great questions. (By the way, I’m working on my schedule for 2017, so if you’d like our team to speak on a topic … Read more

Distributing Truth on MLPs

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By Kris Rosemann The recent merger break-up fiasco at Energy Transfer Equity (ETE) and Williams Companies (WMB) has put the master limited partnership (MLP) conversation back into the spotlight, after the two entities were unable to finalize a merger that had been announced in fall 2015 and would have created the largest pipeline company in the US. The deal between Energy Transfer Equity and Williams was officially terminated by Energy Transfer Equity June 29 after a court ruled that the firm was legally able to walk away from the agreement when it was unable to deliver an opinion on the tax treatment of the transaction that was required by June 28. Williams has since stated that it will seek monetary … Read more

China, Petrobras and the Circling Sharks

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The Federal Reserve meeting last week came and went, and now the markets are back to focusing on fundamentals, as they should. The problem for equity investors, however, is that the fundamentals aren’t great, and it is becoming increasingly more difficult for even the most bullish investors to find reasons for optimism, at least in the near term. The economic environment in China (FXI) continues to worsen. We outlined our grave concerns regarding the implications of its collapsing stock market on the health of the country’s property market, and the resulting consequences on China’s largest banks. Commodity-linked entities in China continue to feel pain, and the preliminary reading on the Caixin China manufacturing purchasing managers’ (PMI) index fell to Financial … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more