Exclusive Analysis for the Discerning Investor
Traditional free cash flow generation has been strong for the oil majors through the first nine months of the year, but their balance sheets remain bloated with net debt. A few haven’t covered their cash dividends with free cash flow generation through the first nine months of 2017. Oil & Gas – Major: BP, COP, CVX, PTR, RDS, TOT, XOM
–> 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
Event Description: Mr. Nelson will walk through his experiences in valuation and financial statement analysis within the stock selection process to help portfolio managers learn how to optimize the strength and resilience of client portfolios–those either built for capital appreciation or income, or both. The centerpiece of the presentation will be a discussion on midstream corporate Kinder Morgan (KMI) and the master limited partnership (MLP) business model, in general, and how applying tried-and-true financial statement, valuation, and credit analysis (in the Valuentum approach) put portfolio managers far ahead the dividend/distribution cuts and the massive slide in share prices… To learn more >> To register >> This event is hosted by the CFA Society of Houston.
Image Source: Roy Luck By Kris Rosemann and Brian Nelson, CFA Valuentum’s opinion of the significant capital-market dependence of the master limited partner (MLP) business model has not changed, and it appears the Williams’ family, Williams Companies (WMB) Williams Partners (WPZ), has become the latest illustration of this ongoing need. We maintain our view that there will be continued challenges to the MLP structure in the coming years, particularly in the event energy resource prices start to give back some of their recent gains and/or if high-yield spreads begin to expand (making borrowing more costly, irrespective of what the 10-year Treasury does). However, with energy resource pricing improving since the doldrums of January/February and the high-yield market warming up to … Read more
“How Simple Financial Statement Analysis Could Save You Big”
“What the parent has done in this example is financially engineer the future distribution stream and capital structure of a brand new distribution-paying entity with effectively no new capital or assets at all. The parent is just standing behind the subsidiary reinforcing its investment-grade borrowing capacity, which supports the distribution that supports the equity price, which provides incremental equity capital that can also be used to support the distribution and so on.” — Brian Nelson, CFA By Brian Nelson, CFA Using a hypothetical example of an MLP and its parent, let’s explain how MLP stock value can essentially be created from “nothing.” The following example is purely hypothetical and for educational purposes only. Let’s say the parent holds a pristine … Read more
Image Description and Source: Mailslot for Cantor Fitzgerald, on the top floors of the WTC. The mailslot was located in a post office near the WTC site. The mailslots are with the Smithsonian Institution. Travis Wise. It’s 9pm Sunday, September 11, 2016. The day is a somber one. The 15th year passing of the tragic events of 9/11 were on everyone’s minds, and I can’t help but think specifically of Cantor Fitzgerald. The financial services company’s headquarters were on the 101st-105th floors of One World Trade Center, just a few floors above the impact zone of one of the hijacked airplanes. The firm lost 658 employees, over two thirds of its workforce, more than “any of the other World Trade … Read more
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
Image Source: SEC By Brian Nelson, CFA Too many investors have been hurt. Management teams want to present their results the best way they can within the boundaries of the law, to bolster their holdings. Some analysts want to “pitch” their stocks in the most optimistic light possible, to preserve their jobs. The consumers of such research want the future to always be bright, so they want to believe the “good news.” The result: there are now very few places to find objective, unbiased research and analysis. It therefore has become more important for companies to provide the most accurate and helpful information possible, and non-GAAP earnings presentation isn’t it — in fact, it has gotten way out of whack. … Read more
Shown above: Energy Transfer Equity’s recent share price performance. A lot of investors depend on us for our energy research. We’ve been busy publishing on the website, and we can’t possibly send out all of our research via email, so please come visit. Many are aware of our take in any case: the energy master limited partnership (AMLP, AMZ) isn’t going away tomorrow, but it may not last over the long haul. This is nothing new. We’ve been saying this since the peak in energy MLP share prices, which just so happened to coincide with Energy Transfer Equity’s (ETE) heights in the mid-$30s. Our readers understand that we’re taking the long view with MLPs when we talk about business models … Read more