98 cents at 2% yield, $49 stock price. Not an unreasonable yield for a 17% q increase.
The board of directors of TEGP's general partner declared a quarterly cash distribution of $0.245 per Class A share for the second quarter of 2016, or $0.98 annualized basis. This represents a sequential increase of 16.7 percent from the first quarter 2016 distribution of $0.21 per Class A share and an increase of 84.2 percent from the pro forma full-quarter (non-prorated) second quarter 2015 distribution per Class A share. It is TEGP’s fourth consecutive increase since its IPO in May 2015.
There was a lot of neg spin with the ETE deal. The headline today that the US is no 1 in oil reserve potential. Still think the infrastructure cos will do well for decades. I'm hopeful this will seem a blip in a couple of years. Armstrong needs to get the positive story out there. They have one but haven't been able to talk about it for a year. More gurus seeing 1% or lower 10 T note, yield plays should do well. Someone mentioned a 15 year mortgage is going high 2% range.
Last announcement was 6/8 so three months out. They have plenty of time to communicate strategy/guidance.
Earnings is a month out, seems they would have the guidance ready and probably div guidance. Armstrong has to step up and can't wait any longer than that, imo. They should know exactly the cash flows with the ETE exercise. I don't know which way they will go, roll up WPZ again, doesn't seem possible now. Are they going down the KMI road of yield plus growth, not exactly what Kinder is planning longer term. Or will they be yield play which argues for a more modest cut to div, sales of assets. I think they should do the latter. Would involve guidance that involves asset sales, div cut and plan to get back to normalized div with couple of years. And stay with that strategy, balance sheet control,
Whole sector today with oil off. 10 yr t note, 1.36% all time low. 30 yr 2.1%, dollar up. This feels like just swing in oil price to higher. Curious to me that haven't heard Brexit today, Hillary takes center stage.
pj, I don't have much regard for the activists or for the whole group, they don't have an interest long term imo. They have been there for 3 years. If you wanted the CEO gone, you could have accomplished that.
They would like to have Transco like everyone else in the industry. They didn't participate because it was too expensive. I don't think WMB's board would want to go through that exercise again but you never know. Seems PSX would be a logical choice.
Frankly, I'm pleased that it happened as soon it did. They need a strong Chairman, an ex energy CEO and a couple more energy related directors. This could have drug on for a while. Putting the activists on the board in hindsight was a mistake. They need to get guidance and strategy out there as quickly as possible. I do think the CFO is one of the best in the sector. And if comm prices cooperate, it will make the recovery smooth. Saying they didn't like Armstrong after they approved the roll up of WPZ, sounds like they are rewriting history somewhat to cover their reps. They could make a run at the company again, not sure anyone would listen, seems they had their chance. A combination with EPD would be great but don't think they would take that much risk, but who knows, EPD is almost $70 b market cap. PSX could do it, it would dilute their refining business which they want to do. Wouldn't be a good time while WMB is artificially depressed imo but who knows. Not sure this isn't over yet.
Jerry, Probably fairly valued in the mid $40s, should improve as comm prices come back, probably takes a couple of years to get back on growth path, ball sheet is ok, good assets. Warren did want them a couple of years ago. Could see a $4 dist in three years, 5% yield, $80 price.
The one I really like now is TEGP, Tallgrass. Great assets in REX pipe and Pony Express oil pipe. REX can add lots of capacity along it's pipe from App to Wy, much like Transco. Growth of 60%, 40% ,40% over next three years with more growth from drop downs from private equity controller. Is controlled by EMG, good energy private equity group. TEGP is the GP of TEP and is an MLP taxed as a c corp, so no k1, tax deferred div at least until 18. I think TEGP could be $2.20 div, 3% yield, $70 stock in three years.
But WMB, still think has the best assets in the sector. Think the merger is artificially depressing the stock price and the headlines don't help either. Glad the activists are gone, or are they? Could get a bump if they try something, Not sure they will get very far.
Wouldn't be surprised if the activists try to garner support from others to make a run at ousting the board. The criticism of Armstrong, they've been on board since 14, curious they take no responsibility. Armstrong is ok, WMB has great assets in core areas. Speculating that this move could run the stock up even if they aren't successful. I wouldn't vote for them and would guess they would not have the influence anymore. Or they could partner with someone else? WMB needs to name a strong Chairman quickly and at least a couple of new directors. I believe the activists were not good for the co. With gas back to $3 and oil continuing to strengthen, activity should come back, 11 rigs up yesterday.
Briefly looked at poss comparator to TEGP. EQGP, 44% annual growth 2 years forward, and it's yield 2.3%. TEGP growth exceeds I think. 84 cent current, 2.3% yield, $37 unit price. Next best was AM at high 20% growth and their yield is about the same as TEGP's. Both comparisons point you to undervaluation. And the drop down opps seem easy beyond the current growth projection. 94 cents at 3%, $31 unit price. Seems we will easily be in the $30s by year end. Not sure the market appreciates the story, not obvious, with nat gas strengthening.
I kind of sense that everything will crater when and if rates move sharply upward. Years ago I projected, for myself, seems you have to have a view, that rates for the 30 yr T bond would fall to 4%, the when was difficult but they were 7% at the time. It hit 2.2% today. And the Fed's ideal inflation rate is 2%. Lots of noise today about negative rates. What rational person would buy a 2% yield 30 year bond.
Touched 1.37 again, Gundlach said a few days ago that that previous low would be the low for this cycle. Forecasting is impossible. 30 yr at 2.2%. With discounts like that, still seems an MLP with a 5% yield and 5% growth. How much would you pay for it. A 2% MLP yield plus 5% growth, 7% vs 1.5% T 10 note. Seems all investors will lose when rates rise again, if they ever do.
Activists stepping off to get control, CNBC suggests., won't sell interest. Faber suggest Cramer knows o and gas, BS. The activists have been on the board since 14 and the chairman since 11. Glad they are gone.
So many economists accept that conclusion, Friedman, but so far it hasn't arrived. What's the saying, economists see what happens and try to put it into theory. Would argue that financial assets have a long way to go, a market pe of 25x??? A 10 yr T note yield of 1.5% doesn't portend inflation. Greenspan's equity valuation model was that the 10 yr should be the equity return, at that level a pe of 67 and we have 17 or whatever. The market is undervalued by a long shot??? Everything is cyclical, I just sense that technology is changing the cycle, we could get much more appreciation before we implode. Look at what e and p cos have done, finding costs are now $40 or lower in the best plays because of technology. We typically only recover 5% of reserves, there is a lot there to improve on. I do suspect that inflation is a long ways out and you are right, the central bankers will keep rates low until things get out of control, how long does it take.
I'm not sure the div needs to be cut that much, will see. Seems the current price already discounts a material cut. If it is cut to fund growth, then the value is not lost.
As for banks, don't they need rising rates, hasn't happened yet.
And the MLP model, if your cost of capital is reasonable, the balance sheet does matter, EPD has a cost of capital at less than 7% and can return 15%+ on projects. The banks, I don't trust them, they will hit the wall again, although they are well capitalized. In some ways the banks are like the o and g cos, every few years they implode, balance sheets get out of control.
As long as the risk free return is 1.5%, you are right, we will have asset appreciation, a long ways to go???
My theory beyond the central banks flooding the market with cheap money is technology is changing everything. We won't have inflation because tech is driving down the cost of production and the delivery of everything. Example, I bought some flags to mark property lines, 25 cent each, my wife ordered from Amazon at 8 cents and free shipping, we bought 100 flags for $8 dollars and it was delivered to our Colorado home at a 8000 ft elevation. That is amazing to me. I'm not sure we ever have inflation again. And central banks are trying to spur inflation with lowering rates, it's not working. This is uncharted territory but I agree with you, what are you going to buy when the 10 yr T note is yielding 1%. At least it's not a negative return. Interesting times we live in.
pj, agree, and your comments on yield, think the whole MLP sector is ready for improving yields, exactly, what would you pay for 5% growth, 5% yield, maybe 4%.
That needed to happen. I suspected the activists were leading the board and don't think they were as long term oriented as they should have been. Bring back the former CEO as Chair. This means the deal is done. Armstrong will do well with a new board. The activists in my opinion thought they were running the co, and maybe they were with a weak Chairman.
tracey, you need to be more long term oriented, 5 years from now when the stock hits $90, you won't even remember the last year.
Still think a few years out, WMB will do very well, assets, Transco, will prevail.
If the midstream industry were to see a wave of consolidation right now, companies including Spectra Energy Corp. and Enterprise Products Partners LP are in a better position to buy up assets, Thummel said.
“You’ve got companies out there positioning themselves, or already positioned, that have a lower cost of capital than you do,” Thummel said.
By abandoning the Williams deal over his financial concerns, Warren passed up on "the crown jewel" of U.S. gas pipelines, Thummel said, pointing at a map and making reference to the Transco pipeline. “If you asked Kelcy where he wished he was, he’s missing out on an opportunity right here.”