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American Capital Agency Corp. Message Board

  • ben9471 ben9471 Mar 15, 2012 7:09 PM Flag

    OT - KMP

    Apologies for anyhone not interested in this, but some of us follow MLPs and I wanted to give a little more flesh to the bones on KMP. I also wanted to provide more information on KMP, KMI and the EP deal to understand why KMP is selling off. Please forgive me for the data.

    I just went back through the EP deal to learn as much as possible. Looks like the sell of of KMP was really attributed to the sale of assets required for KMI (notice this is a different entity) to purchase EP. It awas imposed by the FTC, but Kinder ways he anticipated it and it raises money for KMP.

    Last Quarter, KMP confirmed the 2012 dividend of under $4.98 per share, but an incresae from $4.60 per share in 2011. $1.16 of the $4.98 was paid on Q1, leaving an average of $1.28 per quarter for the next trhee calander quarters. That is a yield of 5.50% at $90 per share where we just were last quarter. I am playing for $90 per share. There is not guess on the disitrubtion and the DCF per unit was $1.28 last quarter, so well within the means to pay.

    The acquision will only benefit KMP, because KMP will get some choice assets out of the deal. KMP just raised $1B in senior notes. So, this may have also had an impact given the rating on the notes.

    KMI, KMR and KMP

    There are three entiries involved in this, KMI is the GP of KMP and KMR. Anyone that knows something different, plase jump in. When KMI first IPO'd in Feb. 2011, KMP sold off. This was because the market felt that KMP would upstream cash flow to KMI. That stock traded down to $71.20 around mid Feb. 2011. It then closed at $77.83 on 4/26/11 (approximately). So, that is the type of thing that can happen when KMI or KMP do something big.

    Summary of KMI aqcquision of EP

    KMI is buying it by tendering its shares, KMP is a part of the enlarged group, but KMP is not the legal entity buying EP.

    My expectations

    What I expect is for KMP to rise back to $90. It might seem rich, but there is nothing wrong with this. KMP is being impacted a little by the EP deal, but not to this extent. NOw, I know why Cramer was selling. Why is this justified? It has happened before in 2011. The stock rose 9.3% from $71.20 to $77.83 in the same exact time period. If we get that, $90.50+ by 4/27.

    What to look out for

    One thing to watch out for. KMP may well report a challening earnings release given the fact that last quarter it did well because of NG prices. I don't think that will be the case now. It gets paid for transporting NG, and I think some the payment stream if commodity related.

    Residual Trade


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    • Please don't trade this based on my views, as Doc pointed out earlier, I could be totally wrong. It wouldnt be the first time. I just like situations that appear to be market mis-pricing. It might just be rough trade.

      • 2 Replies to ben9471
      • Hey Ben -

        I really like your your perspective on different trades. Doc or any poster can comment as they see fit -
        just as you think about some of the trades that Doc posts, and then adjust your trade to suit your comfort zone.

        A good example is to recall how many times Ephort has commented on the trades that Doc has posted.

        I think one of the best of Ephort's responses was -

        "Doc, my head is spinning trying to follow your trades..." :-)

        and as we all know, Ephort is no slouch when it come to options!!

        So I agree with Jim - "Don't worry about ANYTHING that you post"

        All the best,


      • Hi Ben,
        I appreciate your posts and I trade and win/lose on my own accord. KMR is on my radar for my 401K- I liked the drop in price but I see it's PEG at 3.2. I do my own calcs based upon estimates on a spreadsheet. I use 2013- 2012 esitmates.

        My contribution- I took a position on MCP today. I have done alot of homework on why rare earths are a play 2-3 years from now. The phasing out of incandecent light bulbs to CFL's seems underway, however the mercury hazard is drawing eyes - I met with coffee with a rep for the major companies who makes LED light bulbs who said most industrial plants and soon consumers will be going to LED. granted the price is way up there and China owns 95% of production but that will potentially change going forward.


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