KMI - Kinder Morgan

[RRJ]

If you were asking about my post, I was actually agreeing with frommi and you on this.  I see this as a perfectly rational and not that difficult a strategy to execute. 

[awindenberger]

If you were asking about my post, I was actually agreeing with frommi and you on this.  I see this as a perfectly rational and not that difficult a strategy to execute.

 

I was referring to Palentir's post, but thought you agreed with him actually.

[handycap5]

when i played with the numbers, i have them increasing their net debt in 2016.

 

a guess at 2016 might be:

 

EBITDA 7.8 (given)

Cash from ops (I assume this is the same as "distributable cash flow") 5.1 (given)

capex -4.7 (given)

JVs net 0.2 (guess)

acquisitions 0 (guess)

net of above 0.6 (math)

dividends to common and preferred -1.25 (given)

increase in net debt 0.7 (math)

44.7/7.8 EBITDA = 5.7x leverage.

 

i'm surprised they didn't cut dividend to zero and paint an attractive 2018 picture when they are delevered, pig is through the boa, and can start advertising faster growth. upside in the stock is if they can get the "ponzi scheme" MLP wheel rolling again with high priced equity issuance. limping along seems like a bad strategy, business will start to look like a capital intensive, slow growth C-corp (NO!)....

 

but others on this thread have been sharper with the numbers, what am i getting wrong?

 

[thefatbaboon]

Handy you're alright except double counting the sustaining capex which is already excluded from dcf. Think that gets your increase to 0.2.

And you might want to double check your implied 44 starting net debt. Which I think will be a little lower.

[thefatbaboon]

Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

[Spekulatius]

Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

 

Forced selling is what we like to see. FWIW, this is a slow growing C-Corp, best to be compared with an utility company. But it's better than an utility, because the return from FERC pipelines are typically aroun 12% (with inflation adjustments as I understand it), while utilities are typically  close to 10% and often have trouble to get their rate cases through (for investment, which are regulated by the local states, not a central authority like the FERC). Also, the Ponzi scheme optionallty to grow faster via equity issuance is still out there and will come back, it's just temporarily not available because equity cost is very high right now.

[topofeaturellc]

does the book PP&E line up with the FERC regulatory assets?

[thefatbaboon]

Perhaps they bottom ticked it like Pearson.

 

 

[HJ]

Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

 

Forced selling is what we like to see. FWIW, this is a slow growing C-Corp, best to be compared with an utility company. But it's better than an utility, because the return from FERC pipelines are typically aroun 12% (with inflation adjustments as I understand it), while utilities are typically  close to 10% and often have trouble to get their rate cases through (for investment, which are regulated by the local states, not a central authority like the FERC). Also, the Ponzi scheme optionallty to grow faster via equity issuance is still out there and will come back, it's just temporarily not available because equity cost is very high right now.

 

Isn't it only if the industry is still a "growth industry"?  If the pipeline's already overbuilt relative to the commodity that will be produced, then you'd be better off in a utility where at least the ROE is positive.

[shhughes1116]

Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

 

Forced selling is what we like to see. FWIW, this is a slow growing C-Corp, best to be compared with an utility company. But it's better than an utility, because the return from FERC pipelines are typically aroun 12% (with inflation adjustments as I understand it), while utilities are typically  close to 10% and often have trouble to get their rate cases through (for investment, which are regulated by the local states, not a central authority like the FERC). Also, the Ponzi scheme optionallty to grow faster via equity issuance is still out there and will come back, it's just temporarily not available because equity cost is very high right now.

 

Isn't it only if the industry is still a "growth industry"?  If the pipeline's already overbuilt relative to the commodity that will be produced, then you'd be better off in a utility where at least the ROE is positive.

 

I keep hearing/seeing this comment about the overbuilding of pipelines.  That comment sounds great on the surface but is really a pretty silly comment when you consider that KMI's assets are predominately midstream and interstate pipes.  The process for building out midstream and interstate pipelines for dry gas, wet gas, oil, and refined products (gas, aviation fuel, ethylene, etc) requires that you demonstrate a need for the pipeline to FERC.  That "need" is on the supply side AND the demand side, and the time horizon is generally >25 years.  When your interstate pipe ends at a utility that depends on natural gas to power a plant, you can be pretty sure someone on the other end of that pipe is going to move natural gas through your pipe to that utility.  (As we build out more highly subsidized solar and wind power, we will require even more natural gas to provide baseload power when the sun doesn't shine or the wind doesn't blow.)     

 

When we talk about the "overbuilding of pipelines",  the real issue here is with companies that own gathering systems in marginal basins.  Low prices will cause producers to shut-in production in these basins, and thus certain gathering systems will not be used, or will be used at a lower capacity than designed.  KMI derives very little money from gathering systems (if any at all).   

[Spekulatius]

Pipelines are not overbuild. It is correct that in order to build a FERC pipeline, there needs to be a demonstrated need,but it is true that some gathering systems in high cost areas may run below capacity, if drilling in these areas dries up.

[muscleman]

Sorry to ask a dumb question. KMI is no longer an MLP is it?  :P

[tinhb]

http://ir.kindermorgan.com/press-release/all/kinder-morgan-inc-purchase-kmp-kmr-and-epb-2015-kmi-dividend-increase-2-share

 

Yeah it's no longer a MLP.

 

To be more exact, only the subsidiaries are MLPs. Then they are absorbed by KMI (which isn't a MLP).

[muscleman]

http://ir.kindermorgan.com/press-release/all/kinder-morgan-inc-purchase-kmp-kmr-and-epb-2015-kmi-dividend-increase-2-share

 

Yeah it's no longer a MLP.

 

To be more exact, only the subsidiaries are MLPs. Then they are absorbed by KMI (which isn't a MLP).

 

Thank you! I thought that was the case but never really sure. I was confused by the high dividend because KMI is paying out dividends like MLPs. So KMI is not an MLP but paying most of the distributable funds out like an MLP. Isn't that highly tax inefficient?

[tinhb]

Yes the disadvantage is that it is not tax-inefficient. In my opinion, they did it to simplify the structure of the company. When everything is combined together, they thought that it would have higher debt rating --> lower interest expense (which is significant given their debts). Another plus point is that when it's simpler, they hoped that it's more attractive for investors and the stock price would increase. This is important because every year they raise money from equity (around 1B if I'm not wrong). I guess Rich Kinder preferred the combined entity.

 

 

[muscleman]

Yes the disadvantage is that it is not tax-inefficient. In my opinion, they did it to simplify the structure of the company. When everything is combined together, they thought that it would have higher debt rating --> lower interest expense (which is significant given their debts). Another plus point is that when it's simpler, they hoped that it's more attractive for investors and the stock price would increase. This is important because every year they raise money from equity (around 1B if I'm not wrong). I guess Rich Kinder preferred the combined entity.

 

Ok. So this guy raises 1 Bn per year of equity and pays out 4.5 Bn of dividend? If he is smart, this probably means he pays out a fat dividend to bump up the stock price so he can issue equity at a level much higher than intrinsic value?  :)

 

 

[benhacker]

MM,

 

You see the news that the div was cut right?  Cut 75%...

[muscleman]

MM,

 

You see the news that the div was cut right?  Cut 75%...

 

Yeah I am talking about the past before this event. Now that the stock dropped like a stone, he cannot afford to issue equities, so he decided to cut the dividend and use that cash to fund projects. I think that decision makes sense. Does anyone know how much Kinder owns the KMI stock?

[Picasso]

MM, 99% of your questions can be found with simple google searches and sec filings. Just saying.

[muscleman]

MM, 99% of your questions can be found with simple google searches and sec filings. Just saying.

 

Found that info in the DEF 14A. 244,846,090 shares or 11.4 %. Sorry my brain is sometimes short-circuiting after a tedious day of work in Amazon. Sounds like time to leave.  :)

[CorpRaider]

Yeah I started to put a 10x EV/DCF (I generally buy their DCF numbers) on it but my sphincters locked up on me and I blacked out.  Even a 12x is looking at like a $7.50 zip code.

 

If one wanted to make a 12x EBITDA based on like DUK, PNY and SO comps, I would listen with baited breath.

[frommi]

If you look at FCF vs EV shouldn't you add back interest expenses to DCF?

[PatientCheetah]

any thoughts on today's results? at the cost of slower growth, the fact that KMI is self funding now and prioritizing on maintaining investment grade rating removes the debt downward spiral scenario

[Palantir]

any thoughts on today's results? at the cost of slower growth, the fact that KMI is self funding now and prioritizing on maintaining investment grade rating removes the debt downward spiral scenario

Yeah but it also results in slower growth as you noted.

[Guest roark33]

Now that they aren't being valued on a yield basis, people are starting to look at more traditional metrics, and I don't think there are cheap on any of those metrics.  Additionally, counter-party risk is a real issue that they are only slowly starting to disclose.  Coal bankruptcies cut of 65m last Q, wait till the minor E&P players start folding.