Seeking Alpha
, Small Cap Gems (453 clicks)
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

High yield Access Midstream Partners (NYSE:ACMP), a natural gas midstream provider, certainly has had a big week. In the past few days the company:

  • Entered into an agreement with larger energy infrastructure firm, Williams Companies (NYSE:WMB), to acquire a 50% stake in privately held Access GP and approximately 25% of the limited partner units of ACMP for $2.4 billion.
  • ACMP also announced plans to buy most of Chesapeake Energy Corp.'s (NYSE:CHK) remaining natural gas and crude-oil gathering assets for $2.16 billion.
  • To raise the remaining funds for this transaction, the company will offer just under 14mm new common units (later raised to 16mm at $32.15 a unit due to demand) and issue $1.4B in 2023 senior notes.
  • Moody's, S&P and Fitch weighed in on Wednesday to reaffirm ACMP's credit rating after all of this announced news.

Result of these major events: ACMP just picked up a major partner with this transaction with Williams. This should result in additional opportunities for the company in the future. It also pick up some key assets that will significantly grow cash flow and distribution payouts over time. It also further divorces the company from Chesapeake Energy from it was spun out from in June. Income investors should take a hard look at this transformed entity as it looks like it could be a good and growing yield play.

4 additional reasons ACMP is a good addition to an income portfolio at $32 a share:

  1. ACMP pays a distribution of 5.1% and has doubled its distribution payouts over the past two years.
  2. The 12 analysts that cover the units have a $38 median price target on Access Midstream, significant implied upside for a 5% yielder.
  3. ACMP also has a small five year projected PEG (1.42) for a high yielder and is tracking for 10% revenue growth in FY2012 prior to these transactions.
  4. One of the best ways to evaluate this sort of entity is by operating cash flow (OCF). ACMP has done an impressive job growing OCF, tripling this metric over the prior three years.

Disclaimer: Obviously, all metrics are before recent transactions get factored in. However these transactions should increase growth prospects, cash flow and distributions over time.

Source: Access Midstream Partners: Big Week For This 5% Yielder