KMI - Kinder Morgan

[Palantir]

Yeah, I think post distribution cut, looking at EV/EBITDA, this is probably fairly valued right now.

[Picasso]

What's the right EV/EBITDA multiple for this business?  I've asked this a couple times on this thread and no one's given me a good answer.  Also when do you as a shareholder get to see some of that free cash flow?  This is an equity stub that is somehow still worth $30 billion.

 

I can easily make the case that it should trade at half the current price or even less.  Just as easy to make it look inexpensive if you want to give it an old 12x multiple.  Plus there are only going to be constant downward revisions to EBITDA in the future.  Rich Kinder should issue some stock here while he still has the chance.  He has way too much leverage in this environment to just hope things start to get better.

 

 

[Spekulatius]

The pipeline business, as far as the larger backbone and especially FERC regulated pipelines are concerned are similar to real estate assets. They throw of predictable amounts of cash (that are indexed to inflation with a little bonus on top if FERC regulated) for a long period of time, measured in decades.

Now other assets like processing plants and interconnects are less predictable and also require more Capex to keep them current. Overall, since the business is somewhat similar, I think the leverage should be a bit less than what a real estate asset should be valued at. I think you get a very good deal, if you can buy it for 10x EBITDA. In fact, for  FERC regulated pipeline, I think it would be a fantastic deal in the current low interest environment.

[Guest roark33]

We are going to lower our debt levels, they said....Sure....

 

http://www.sec.gov/Archives/edgar/data/1506307/000110465916091457/a16-2881_1ex99d1.htm

[Palantir]

We are going to lower our debt levels, they said....Sure....

 

http://www.sec.gov/Archives/edgar/data/1506307/000110465916091457/a16-2881_1ex99d1.htm

 

Completely tone deaf management.

[jay21]

We are going to lower our debt levels, they said....Sure....

 

http://www.sec.gov/Archives/edgar/data/1506307/000110465916091457/a16-2881_1ex99d1.htm

 

Completely tone deaf management.

 

How much are they refi'ing? And upsizing at 150bps is good, no?

 

Sorry, dont follow this one close.

[Guest roark33]

This is from the conference call last week, Jan. 20

 

"So I think the real message here guys is we are self funding now. Okay. And I got to tell you that to me that's a big relief, nobody is affected any more than I was by the division cut. Okay. But the point is we are building a very solid, stable, balance sheet with the ability to return an awful lot of cash to our shareholders over the next few years."

 

Self-funding must mean something different at KMI.  If I claim to not increase my debt, i.e. self-funding my personal expenditures, and then go add $2B onto my credit card a week later, something isn't right.

 

Another gem from just a week ago:

 

I believe that long term, the fact that we have no need access equity markets not just for ‘16, but for the foreseeable future and that we will self-fund our capital expenditures our growth capital should in the long run I think be a very solid underpinning to this company and we’re going to be able to return a lot more money to our shareholders in the long term as well as de-lever the balance sheet.

[Palantir]

There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

 

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

[frommi]

There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

 

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

 

Of course they can grow the dividend with the higher DCF of one year later, otherwise growth capex is maintenance capex.

 

<quote> Proceeds from the term loan will be used for general corporate purposes, including the repayment of existing borrowings. </quote>

 

Wheres the problem with that statement? They refinance some debt that is due in 2016.

They lowballed the guidance for 2016, but is that really surprising?

[Palantir]

There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

 

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

 

Of course they can grow the dividend with the higher DCF of one year later, otherwise growth capex is maintenance capex.

 

Not if they have an increased capex program, if they do manage to grow, div growth will be weak.

[jay21]

This is from the conference call last week, Jan. 20

 

"So I think the real message here guys is we are self funding now. Okay. And I got to tell you that to me that's a big relief, nobody is affected any more than I was by the division cut. Okay. But the point is we are building a very solid, stable, balance sheet with the ability to return an awful lot of cash to our shareholders over the next few years."

 

Self-funding must mean something different at KMI.  If I claim to not increase my debt, i.e. self-funding my personal expenditures, and then go add $2B onto my credit card a week later, something isn't right.

 

Another gem from just a week ago:

 

I believe that long term, the fact that we have no need access equity markets not just for ‘16, but for the foreseeable future and that we will self-fund our capital expenditures our growth capital should in the long run I think be a very solid underpinning to this company and we’re going to be able to return a lot more money to our shareholders in the long term as well as de-lever the balance sheet.

 

I got that they are refi-ing. In other words, little to no increase in net debt. That seems in line with what they are saying in their commentary.

 

I mean obviously maybe not, that's why I was asking what maturities they have in 2016.

[frommi]

Not if they have an increased capex program, if they do manage to grow, div growth will be weak.

 

Dividend growth will match DCF growth. And i am pretty sure that when the market values the equity at a higher price, that they than use equity capital to grow it even faster. But why should they talk about that now? Kinder is a pretty good capital allocator, so why the mistrust?

[Palantir]

Div growth does not necessarily match dcf growth. The second par of your statement is wishful thinking, not analysis.

 

[frankhkii]

There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

 

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

 

Or 4)Repurchase shares 5) Pay down debt. You analysis is too simplistic, its a long game.

 

I view yesterdays filing as a refinance not adding to the pile since ~$1.6B matures this year. Most of the capex number is for growth which results in more DCF in the future. They mentioned they are raising their internal hurdle rate for projects. I would imagine that calculation simplified is the current DCF yield on the equity and if it doesn't meet that I would hope they repurchase shares. These are good assets that will produce DCF for a long time so I'd much rather they repurchase shares than pay any dividend at all or raise it when the equity is at current levels.

[Palantir]

Uh no, they do not need to repurchase shares.

[frankhkii]

Uh no, they do not need to repurchase shares.

 

Maybe not "need" but its what they should do. If they "need" to grow the dividend why would it not be a better alternative to repurchase shares at the current price? Basically it is not "needed' to (re)attract yield pigs into the name, sure it could provide an exit, but it is not needed. And if these assets will produce DCF long into the future at rising rates (in the long term), repurchasing shares makes the most sense at current prices.

[frankhkii]

They're only 2 questions in on the analyst day Q&A but I would recommend you listen re buybacks at the current price, both questions so far have talked about it.

[Palantir]

No, the better thing to do would be to suspend distribution and use everything either on capex or just hold it on their B/S. No point repurchasing shares at 9-10x Ebitda www they can build projects at 7x.

[frankhkii]

Yet you say they "need" to raise the dividend..??

[Palantir]

Need to in order to be a good investment, but cannot accomplish it.

[CorpRaider]

You guys will see this but it looks like Tepper bought a lot of the common @ ~$15 and even dropped a mil or so on some warrants.

 

Seems like he's just making a bet on the industry as he also picked up ETE (even larger position ~4%) and AMLP.

[enoch01]

You guys will see this but it looks like Tepper bought a lot of the common @ ~$15 and even dropped a mil or so on some warrants.

 

Seems like he's just making a bet on the industry as he also picked up ETE (even larger position ~4%) and AMLP.

 

I'm guessing this is insurance against short positions.

[CorpRaider]

Maybe, but it looks like he added a lot of longs, generally speaking, last quarter.  If you will recall, he was calling for taking cash off the table in q4 2015.

[enoch01]

Maybe, but it looks like he added a lot of longs, generally speaking, last quarter.  If you will recall, he was calling for taking cash off the table in q4 2015.

 

No I don't recall him saying that.  However it seems to me lots of energy credit is in trouble at these commodity prices.  An astute investor such as Tepper may be short lots of it (or was in the recent past) and perhaps hedging himself (or was hedged in the recent past) with insurance on way OTM stuff like KMI warrants.

 

[CorpRaider]

I remember, "just don't be so freaking long, ok?"  (also refreshed myself on timing of quotes).  You could be right.  I suppose the same could be said of any of these disclosures.  We will probably find out soon enough as he does a fair amount of media these days.