KMI - Kinder Morgan

[JRM]

If I'm reading it correctly Canada is buying the existing pipeline and the new pipeline.

[bizaro86]

If this doesn't get built now I hope the feds take the $4B off of BC transfer payments.

 

I'm not sure whether this makes it more likely to go ahead or more likely to get stalled politically. On the one hand, the government cares more about appearances than KMI. On the other, some activist BC judge is probably less likely to shut down the Government of Canada than KMI.

[TBW]

Unclear how the govt funds it. Kml had debt lined up. Does govt use that at better rates? Or does it wait for a bidder to come in next 2 months? No one is paying a high price at this point. So does govt raise project debt?

 

Seems like a good deal for kmi and KML.

 

I don't understand KML reaction. They have 220 to 270mil of ebitda remaining and getting $12 per share in after tax cash from govt. To me worth somewhere in the $22 to $23 range

[SharperDingaan]

Unclear how the govt funds it. Kml had debt lined up. Does govt use that at better rates? Or does it wait for a bidder to come in next 2 months? No one is paying a high price at this point. So does govt raise project debt?

 

Seems like a good deal for kmi and KML.

 

I don't understand KML reaction. They have 220 to 270mil of ebitda remaining and getting $12 per share in after tax cash from govt. To me worth somewhere in the $22 to $23 range

 

It's likely the government simply makes the service payments on directly related KMI debt (defeasement), & borrows the difference at floating rate. As/when the debt rolls off it's refinanced with GOC long-term bonds. Straight forward.

 

The peoples pipeline goes ahead, and the port facilities get expanded/re-located. Over time, new (& bigger) pipe replaces older pipe and improves overall safety. End of discussion, and Petrocan/NEP finally forgiven. Elegant.

 

SD

 

[sculpin]

Macro Enterprises - Canadian Transmountain pipeline builder

 

Canadian pipeline builder Macro - no debt, about $1.30 net cash per share & very large contracts to build Transmountain. $2.60 on the TSX today.

Paradigm...

 

Macro Enterprises Inc.

Rating: Buy

unchanged

12-Month Target: $3.25

 

Ticker MCR-T

 

Jason Tucker, Analyst | 403.513.1031 | jtucker@paradigmcap.com

 

Significant Upside with Limited Downside

 

Investment Thesis. Macro is active in liquids-rich plays like the Montney and has a growing

presence in Fort McMurray. Over the long term, Macro remains well positioned to benefit from

increased activity related to LNG export facilities and the required infrastructure.

 

Event

 

Macro Enterprises Inc. (MCR) announced first-quarter results that were below our

expectations. We continue to believe Trans Mountain will be built in some form or

fashion, but the delays will hamper the company’s 2018 financial performance.

 

Highlights

 

 Industry Slows | MCR reported first-quarter revenue of $8.8mm, an EBITDA loss

of $1.6mm and an EPS loss of $0.07, compared to our expectations of $12mm,

($0.5mm) and a loss of $0.05, respectively. We had anticipated stronger MSArelated

revenue for the quarter.

 

 Busy, Little, Bidding Beavers | MCR remains active on the bidding front,

including bids in conjunction with its current joint-venture partner. The company

remains optimistic that overall activity will pick up in H2 with several large projects

set to be awarded and commence construction in the near term.

 

 We Hear You Nancy | You can no longer resist the urge of the dark side —

you've taken a point of view that Trans Mountain won't get built and neither do

other major oil pipelines or any pipelines related to LNG exports on Canada's west

coast (yes Canada's west coast). At that point you may wonder, what exactly is

the base business and what does this company look like should the bidding

process not go in MCR's favour? First, we remind you of the company's net cash

position and fleet of equipment. Then, if we assume a run rate quarterly revenue

from MSA work for the company of ~$15mm, throw in some small project work to

the tune of $5mm per quarter (actual was ~$3.5mm in Q1/18, so not far off a

worst-case scenario) and you have a moderate annual revenue estimate of

$80mm. Using a 10% EBITDA margin, you are left with a company that if sold at

5.0x EV/EBITDA multiple would fetch $2.18/sh (1.5% downside). Should the buyer

pay book value ($4.72/sh) for the assets that would imply 123% upside.

 

 However... | If MCR were successful in winning two additional major projects of

similar size to Trans Mountain, MSA work normalized back to ~$20mm per quarter

as activity picks up and small projects account for $10mm per quarter, this would

imply $420mm in annual revenue. Assume of gross margin of 10% (given larger

projects come at lower gross margin) and SG&A of $10mm annually, the same

5.0x take-out metric equates to a share price of $5.75, representing 160% upside.

 

Valuation & Conclusion

 

Delays and a reduction in project work and MSA-related spending will impact MCR’s

Q2 results for MCR. However, longer term, we believe the company is ideally

positioned to benefit from a significant increase in large project work. Our forecast

continues to include revenue from Trans Mountain but does not include any additional

large project awards. Successful bids would represent upside to our current forecast.

We maintain our Buy recommendation and $3.25 target price (5.5x EV/EBITDA based

on our 2019 estimates).

 

 

[Spekulatius]

I can’t understand the reaction of KML.TO to this news either and hence bought some KML stock. Looks like a fair deal and win- win to me.

[Spekulatius]

KML looks quite interesting. If KM CA makes ~200M in EBITDA it means that KML share would be 39% of this or 60M or roughly 60c/share. Now KML will receive 12.5 CAD in cash proceeds for a 16.2CAD share price.

 

The question is what is KMI going to do with KML. The current structure makes no sense and is also tax inefficient. KMI could either buy thr minority KML holders out, or they could sell the bulk all or of the remainder of the company to KML shareholders. Current equity of KMI in their Canadian business is 2.1B CAD, so KML with 1.25B CAD and adding the remainder in debt could buy them out (depending on premium to book).

 

This would make sense to KMI because KMI itself is cheap (they could buy back stock with the proceeds or deleversge) and holding KML as a Canadian C-Corp isn’t tax efficient for KMI.

[wisowis]

Q2 Results for KML: https://ir.kindermorgancanadalimited.com/2018-07-18-Kinder-Morgan-Canada-Limited-Declares-Dividends-and-Announces-Results-for-Second-Quarter-of-2018

 

- Adjusted EBITDA was $107.8 million, up from $91.5 million in the previous period.

- For the first half of 2018, KML generated net income of $58.1 million, Adjusted EBITDA of $205.8 million, and DCF of $168.8 million.

- KML expects the transaction to close late in the third quarter or early in the fourth quarter of 2018. 

- Eliminates 3% market discount for the DRIP.

[JRM]

It sounds like KMI management is open to selling KML based on answers given to the analysts during the conference call. 

[wisowis]

Kinder Morgan hires TD to sell Canadian business: sources

https://business.financialpost.com/commodities/energy/kinder-morgan-hires-td-to-sell-canadian-business-sources

[gfp]

I haven't followed this one in a while, but I keep noticing Richard Kinder buying shares in the market every day lately -

 

https://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001506307

 

I suppose he could just be reinvesting his dividends

[petec]

I haven't followed this one in a while, but I keep noticing Richard Kinder buying shares in the market every day lately -

 

https://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001506307

 

I suppose he could just be reinvesting his dividends

 

Or his $1 salary ;)

[JayGatsby]

I din't realize that. Thanks for sharing.

 

This is my biggest position (not that my historical returns warrant following me lol).

 

Seems like an incredible valuation to me. Double digit FCF yield, moderate debt load now, good capital allocation, solid reinvestment opportunities.

 

There's some decent articles on seeking alpha about it recently actually. The company's investors primarily seem to value it based on dividend yield. So I think you have a disconnect between the yield and what's actually happening in the financials. They'll increase the dividend to $1.20 a share in about a year, so that should warrant some revaluation if nothing else does.  They got way over their skies with dividends pre recession and burned a lot of their investors. They basically told all their retiree dividend investors they'd continue to increase the (large) dividend and then a month later they slashed it, crushing the valuation and crushing people's retirement accounts.

[Spekulatius]

I din't realize that. Thanks for sharing.

 

This is my biggest position (not that my historical returns warrant following me lol).

 

Seems like an incredible valuation to me. Double digit FCF yield, moderate debt load now, good capital allocation, solid reinvestment opportunities.

 

There's some decent articles on seeking alpha about it recently actually. The company's investors primarily seem to value it based on dividend yield. So I think you have a disconnect between the yield and what's actually happening in the financials. They'll increase the dividend to $1.20 a share in about a year, so that should warrant some revaluation if nothing else does.  They got way over their skies with dividends pre recession and burned a lot of their investors. They basically told all their retiree dividend investors they'd continue to increase the (large) dividend and then a month later they slashed it, crushing the valuation and crushing people's retirement accounts.

 

You can still read endless comments to the tune of “ We will never forgive the dividend cut” from investors back then in Seeking Alpha. The valuation is still fairly low, even after a ~15% run up from the lows. I do wonder if sooner or later they will dispose of the fairly commodity price sensitive CO2 segment they imo doesn’t fit quite in KMI any more. It might be dilutive to DCF/share to do so,  it I think it would help to get KMI valued higher. I am still hanging on all my shares, but have whittled down my WMB and ENB holdings a bit, since they recovered.

.

[JayGatsby]

More purchases by Kinder: https://seekingalpha.com/article/4239804-insider-weekends-chairman-kinder-morgan-steps-insider-purchases

 

Granted he's basically just reinvesting dividends, but positive nonetheless.

[wisowis]

May 9th, 2019:

 

After a multi-month process that involved rigorous analysis of a variety of potential alternatives, the KML board has determined that the current best course of action for the company and its shareholders is for KML to remain a stand-alone public entity.

 

Today, August 21, 2019:

 

Kinder Morgan Canada Limited (TSX: KML) today announced that it has reached an agreement with Pembina Pipeline Corporation (TSX: PPL; NYSE: PBA) (Pembina) under which Pembina has agreed to acquire all of the outstanding common equity of KML (including the 70 percent majority voting interest held by Kinder Morgan Inc. (NYSE:  KMI)), subject to the terms of the arrangement agreement between KML and Pembina.  On closing, KML shareholders will receive .3068 shares of Pembina for each KML share. Based on yesterday's closing price for Pembina, the total consideration to be received by KML common shareholders is valued at $15.12 per KML share, which represents a 38 percent premium to yesterday's KML closing price.

[Saluki]

It' surprising that it's been almost a year since someone has posted on this.

 

https://www.dataroma.com/m/stock.php?sym=KMI

 

Looks like Rich Kinder has bought about $27 million in stock since february.  I know that for him, that's probably dividend money, but I bought a small position to force me to sharpen my pencil and take a closer look at it. 

 

It looks like that pipeline they sold back to the  Canadian government helped them dodge a bullet.  They cut back capex and seem to have been able to generate enough cash to do everything they want (including not cutting the dividend).

[JRM]

I can understand why the Robinhood crowd isn't excited about NG transport.  They're too busy pumping Nio.  What I fail to understand is why pension funds aren't buying this thing hand over fist. 

 

Berkshire Hathaway purchased Dominion's NG pipelines very recently.  The old man must be slipping.

[lnofeisone]

It' surprising that it's been almost a year since someone has posted on this.

 

https://www.dataroma.com/m/stock.php?sym=KMI

 

Looks like Rich Kinder has bought about $27 million in stock since february.  I know that for him, that's probably dividend money, but I bought a small position to force me to sharpen my pencil and take a closer look at it. 

 

It looks like that pipeline they sold back to the  Canadian government helped them dodge a bullet.  They cut back capex and seem to have been able to generate enough cash to do everything they want (including not cutting the dividend).

 

Selling to the Canadian gov't really helped. They are also making all the right moves with CAPEX and refi. The most recent refi is helping them reduce interest by 50% (which isn't a whole lot on $1B of notes but helps) and really extends maturities into the future. It's almost like KMI found discipline they lacked in the past. I've been slowly accumulating along with EPD and smallish ET (this is one has phenomenal assets but crappy BS and trigger-happy CEO).

[JayGatsby]

One of my bigger positions. Q2 should be the bottom, unless the NG market falls apart.

 

The legal framework around pipelines makes it look like there won't be a lot going forward. Flipside of that is it makes their existing pipelines more valuable.

 

Once the current projects are completed they should be in position to raise the dividend.

[JRM]

https://www.forbes.com/sites/greatspeculations/2020/10/24/kinder-morgan-charting-a-us-midstream-recovery/#78a9b3ce3c22

 

Pretty high level, but good excerpts from quarterly report.

[Spekulatius]

https://www.forbes.com/sites/greatspeculations/2020/10/24/kinder-morgan-charting-a-us-midstream-recovery/#78a9b3ce3c22

 

Pretty high level, but good excerpts from quarterly report.

 

They are going to get through this, but it is not fun to own a company with almost 4x leverage and shrinking EBITDA. There is a hard way and an easy way to delever - the hard way is via paying back debt, the easy way is keeeping debt the same and growing EBITDA.

 

KMI has to do it the hard way (actually really since crude crashed in 2015) and it hasn’t been a nice ride for shareholders.

[Castanza]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

[ValueMaven]

Any good reason why Williams has crushed KMI and even Enbridge on the upside recently?

[JRM]

https://www.forbes.com/sites/greatspeculations/2020/10/24/kinder-morgan-charting-a-us-midstream-recovery/#78a9b3ce3c22

 

Pretty high level, but good excerpts from quarterly report.

 

They are going to get through this, but it is not fun to own a company with almost 4x leverage and shrinking EBITDA. There is a hard way and an easy way to delever - the hard way is via paying back debt, the easy way is keeeping debt the same and growing EBITDA.

 

KMI has to do it the hard way (actually really since crude crashed in 2015) and it hasn’t been a nice ride for shareholders.

 

Normally 4.6X debt/EBITDA would be considered high, but they are making contract and business decisions out to 2040.  Unless Biden can shut down oil and natural gas overnight, I don't think the leverage is a problem for KMI.  I tend to think investors are concerned about contract renegotiations with soon-to-be bankrupt producers.  There are outcomes where the debt is a problem, but if the debtor in possession wants to move product they only have one option.