Good thoughts no sweat. Management may be over extended after years of growth. So, time may be needed to consolidate recent acquisitions and focus on operations.
Change in bank covenants seem to allow for more more leverage, so maybe they won't issue much more equity at this stage. I continue to be a bit frustrated by lack of growth in DCF/share over the years despite all the acquisitions and capex programs. Part is due to per repricing of NG market after big increase in supply. So, I view this as income stock and not really expecting significant appreciation when it is above $20.
Money, As I said just a gut instinct based on the fact that there has not been any significant growth in DCF/share. I assume all of the aquisitions and growth capex are suppose to increase DCF/share, otherwise why would you do them? Yet, DCF/share was a bit over $2 (along with distribution) back in 2008 when I first started looking at this. This year looks about the same, or even lower if they issue shard to get leverage closer to 3. So, are part of the aquisitions and growth capex spending needed to keep DCf/share stable? Hard to say since there are other factors such as commodity prices and higher cost debt that has likely worked against them. But they have spent a lot of money beyond maintenance capex over the years, so it seems like more growth would have showed up despite those negative factors.
Barron's article on Kinder Morgan alluded to their maintenace capex being too low (and somewhat subjective call by management). Perhaps just a cheap shot by Hedgeye, but the numbers do seem pretty low as a percent of their total capex. Plus management does have incentive to keep maintenance look low to make numbers look better.
The non-cash comp issue is more straightforward. Management gets shares every year which lowers the DCF/share every year, everything else equal. Unless real cash is spent to buy back those shares. So, a more conservative view of sustainable non-dilutive DCF/share would allow for the cost of buying back thsoe shares.
Just my instinct. Epecially over the long run. Maybe $125MM maintenace capex is enough now, but likely would climb over the years as the high return projects are depleted. More analysis of the numbers would be needed to make a stronger argument.
The issue I have is there seems to be no long term growth in distributable cashflow. Based on guidance, I calculate DCF around $2.22/share. It's been around low $2s for years despite all of the acquisitions and growth capex. To be fair, some is due to lower NG prices now vs 6 years ago. On the other hand, my gut instinct is that most of these firms have maintenance capex too low to really keep production constant long term (not to mention yearly dilution from non cash compensation which everyone ignores). Maybe acquisitions can offset those factors.
$2.22 is with leverage of 3.7, and debt still expected to increase this year (based on guidance). If they issue 15mil shares to get leverage closer to 3.0, then DCF drops below $2.00 and coverage is about 1.0. Maybe they are giving up on 3.0 leverage target, but I doubt they want it higher than it is now for an extended period.
I hold for income, and only buy on real weakness. Was hoping for a bit more of a pop to sell some. Yes Mr. Beard, I remember when the distribution was over $2 and got cut to zero. I have to think about your lower oil theory, but it could be correct as no one seems to expect it.
2cd half ebitda was below prior guidance. 2014 ebitda guidance of $500-520 a bit below what I was hoping for.
Debt will go up by more than $150mm this year under guidance , with no acquisitions. Leverage around 3.75 and rising. So, expect more shares to be issued at some point.
There shouldn't be a problem paying down debt if excess cash is available. A lot of production is hedged, so improved pricing may not have as much benefit as you think. Plus, historically they have had large growth capex programs. So, probably not much excess cashlow after distributions, interest and total capex. So, I doubt any big pay down.
We will have a better idea when they announce guidance for this year.
The $394mm ebitda is backward looking. Does not include full year of acquisitions and growth capex. I am expecting around $500mm for 2014. Maybe a bit higher.
Remember ebitda guidance for second half of 2013 was $240mm, and that did not include full effects of acquisitions. Not sure about seasonality affecting 2cd half, but NG pricing has been better this winter than last year. Not all is hedged.
So, leverage ratio not as bad as you calculate.
I'm with you Ruby. Even the timing of sale argument does not persuade me. If you sell between Jan and Feb ex dates , you are 1/3 distribution ahead (vs old payment with 100% ex in Feb). If you sell between Feb and Mar ex dates, you are 1/3 behind. Between Mar and April you are the same as before. Each of those are 1 month periods, with equal probability of being ahead, behind or same vs prior quarterly payment. And then you are ahead again after April ex, etc.
So an average you are the same, not one month behind. If you picked one thousand random sale dates in the future, the average distributions received would be the same as before.
Not that it really matters, since share price adjusts for all this any way.
I guess I still don't get it. The first monthly ex date (Jan) is 2 months after the last one in Nov. The second one 3 months after, and the 3rd one 4 months after. So the average ex (and payment) is 3 months after the last one in Nov. Just as it use to be. 1/3 is later, but 1/3 is earlier. A wash in my book.
Not that it really matters. We shareholders benefit (through higher share price) if any cash is retained or debt paid down.
Yes, but in January you are one month ahead. You are ignoring that. I see no material difference between getting everything in Feb, vs 1/3 a month early (Jan) + 1/3 a month late (Mar) + 1/3 at normal time (Feb). Yes, part is later than normal, but part is earlier than normal. That is a wash in my mind. Plus the benefit of more frequent cashflow is nice to have.