Atlas Pipeline: Hang in There

I just went through the quarterly conference call for Atlas Pipeline Partners (APL) and the news is encouraging. First, I will state that the current market mentality does not reward companies that are able to continue to prosper or are working to improve their results in the current economic environment. I am really at a loss to understand why there is not more positive stock price results for those companies that are still doing OK despite the overall economic situation.

I pulled two major ideas from the APL conference call that I believe are positive for the company:

1. The 38¢ dividend declared for the 4th quarter had 1.5 times coverage in distributable cash flow. Prices and margins have improved in the first quarter and management declared that the new dividend was set at a (hopefully) sustainable rate. The stock currently yields 26%.
2. The company is in end-stage negotiations to sell part or all of 3 different assets. The proceeds from these sales will be used to pay down debt and de-leverage the company. Completion of these deals could happen in just a few weeks.

APL has been one of the hardest hit of the midstream natural gas companies down over 90% from last summer's 52 week high. Atlas Pipeline Partners seems to have survived the 4th quarter energy price collapse and is still able to generate free cash flow. It may take another quarter or two of increasingly better numbers for the market to like this stock again, but at the current share price I think long term investors will be well rewarded.

Disclosure: APL is a component of my site’s Income Portfolio.

Comments

[Wawizzle:]

I agree. APL is actually now at a 40% yield based on the $0.38 dividend from last quarter.

I would not be surprised by another dividend cut before the next distribution.

I'm still bottom fishing before I join in myself.

Mar 05 10:39 AM

[jpau:]

Tim

Why do you think ATN is getting so hammered this week?

Mar 05 10:46 AM

[jpau:]

Tim

More questions - could you expound on which assets APL is selling, and are they giving up vital pieces or expendable ones?

Also, I looked at ATLS' transcript and I haven't seen much more on the idea of combining AHD and APL, ala MMP. Do you think they are still considering this?

Mar 05 11:02 AM

[jumpingjoe:]

Does anyone think that the $600 million dollar write down of goodwill has any bearing on the companies financial statement? Back that out and the company is profitable! Am I missing something? How should this be interpreted? Are they selling the well performing assetts at a discount in order topay down debt only to be left with underperforming remaining assetts? Appalachia, Ozark. The cmpany is not forthcomming with information that is helpful for us to analyse the results of these pending sales. They bought a lot of things on leverage and increased their performance, the results as shown in the forrth quarter increases, Are they now dumping those assetts or other assetts at a loss. If so the result would indicate that the $600 million write down to goodwill reflects that they paid too much for those assetts and when they sell to deleverage then this writedown that nobody talks about and the company says is not real money will reflect by reducing the asset value of the company. Then after the assetts are sold the company no longer has the increased revenues that those sold assetts so positively reflect in the fourth quarter.
The question then becomes What is the value of the leftovers and what kind of revenues will the leftovers generate.
An after thought, The only way that thesale of assetts can be good for the company as a whole is if the assetts are sold at a gain. Only as a gain can the liabilities be reduced in any meaningfull way. If sold at a loss lthey are left with a higher proportion of debt. Under these market conditions is there anyone left who is willing to buy assetts at the pre collapse price or better? I doubt it. People and companies are looking for and finding extreme bargains now.
I wouldn't be surprised that at the stock price level anyone negotiating a purchase at anywhere near the pre collapse value could buy the whole company cheaper than the parts just buying th stock.

Mar 05 12:01 PM

[Bhakta:]

I bought APL at about $15 some time ago... I am frankly amazed at the continued selling pressure, as the company is doing just fine cash flow wise, which is all-important.

Mar 05 12:27 PM

[Marc Courtenay:]

Thanks for your article and comments Tim. On more than twice the average volume this slaughter of APL has so much more to it than meets the eye. How do I know? By both the price movement of the share and the volume. Jumping Joe's comments and worries above could be part of it, and yes Bhakta, if APL can keep their cash flow to strong enough levels it should all work out.

Mar 05 06:39 PM

[rowen:]

I don't get it either. At these prices the yield is like 28%. Are the dividends seriously threatened going forward?

On Mar 05 10:46 AM jpau wrote:

> Tim
>
> Why do you think ATN is getting so hammered this week?

Mar 05 11:22 PM

[scrambledyegs:]

I listened to the recent APL conference call. I think the market has reacted with additional price declines because APL is selling assets that generate fixed price revenues (the only assets that have decent market value). This is leaving the partnership with a higher percentage of assets that generate variable price revenues based on the price of natural gas or NGL's. Unless prices for natural gas and NGL's increase in the near future I would expect the partnership to cut the dividend significantly or even eliminate it. The partnership is being forced to sell their "good" assets now in order to comply with debt convenants so the news about the asset sales should not be considered good news. Finally, while the APL management stated that they thought the current dividend was sustainable they did not provide any reasons for that belief; they did not tie their expectations of future performance to an expected or estimated price for natural gas or NGL's.

Mar 09 05:15 PM

[divi-divi:]

There is a post on one of the APL message boards regarding a poster writing to investor relations to request APL release news more often. Investor relations responded by saying this market doesn't respond to good news, but good news on APL will be coming out very soon.

Mar 16 07:46 AM