Hinds Howard

Growth at reasonable price
Hinds Howard
Growth at reasonable price
Contributor since: 2010
Company: CBRE Clarion Securities
Good stuff Phillip, I agree with you... http://bit.ly/PavzOW
Same as my blog.
The KMR offering increased the unit count for KMR, so yes. But, proceeds from the offering will be used to help fund an acquisition that will increase the per unit distributable cash flow and distribution for KMP (i.e. an accretive acquisition).
No dilution, its a secondary sale, all proceeds go to the current shareholders that are selling.
This is a secondary sale of shares owned by the private equity firms (Carlyle Group, Goldman, Riverstone) that took KMI private back in 2007. So, no dilution, less overhang going forward, management not selling, so it will weigh on the stock, but after that its an incremental positive.
I like it better than KMP, given that its the same company and same distribution (in units), but trades at a 10% discount. Its great for retirement accounts, but I don't see the catalyst for that perpetual discount to go away, barring its elimination altogether.
At one point, I thought KMP might consolidate KMR because KMI was out there for people to buy in retirement accounts and for institutions to buy. and so there was some value in owning KMR in the event it was merged into KMP at some premium. But, now that KMP did an actual offering through KMR last week, it seems like KMP is committed to keeping it in place.
Because of its discount, KMP loses money long term by having it in place because each quarter when they pay distributions, they are essentially issuing equity at a 10% discount. So, if you like KMP, you should like KMR better. KMR's current discount has historically been a good entry point relative to KMP. I don't own it though, and am not recommending it in any way. Oh, and all of the above should not be construed as investment advice, just one man's rambling opinion.
Great title, not so great article. While I agree that KMP is overvalued right now, you mentioned none of the relevant factors like: 45% of their cash distributions go to the GP, distribution coverage ratio is lower than other large cap peers (especially EPD, which does not have incentive distribution rights), they are still struggling to make up for the Rockies Express pipeline turning out to be totally superfluous, lower expected distribution growth than other comparably priced investment grade MLPs, the massive amount of equity KMP needs to issue to fund its acquisitions and capital budget, etc.
I am long KMI and remain so given it benefits from most of the negatives of KMP, like KMP having to issue a bunch of equity and 45% of CF going to the GP (KMI).
You know what would really help the analysis would be to take all of your FCF analysis and do the same thing for a more traditional MLP like EPD or KMP to see if their FCF covers distributions, and to show how STON does it somehow differently. Looking at STON's books in isolation isn't enough.
Historical context, this will be the largest ever MLP IPO in terms of gross proceeds, exceeding the IPO of EPB in 2007. See here for my quick breakdown of IPO in my Week Thoughts post.
In the second tab of that spreadsheet those are listed as well. There are a lot of publicly-traded GPs, like Loews, APC, HFC, SE, TRP, TK, LNG
Thanks John, one thing to note, a reader has pointed out that EROC eliminated its IDRs in 2010 as well, so I just updated the spreadsheet for that.
Thanks for the shoutout, I just posted a list at my site of each MLP, their current IDR tiers, and which MLPs have eliminated or capped their distributions. Enjoy!
You pretty much have to go through the filings. I've done that and have which MLPs have IDRs in my database, if I can find time, I'll post the list at mlpguy.com
I can't give direct financial advice on this website, for compliance reasons within my firm, but the above list is a good place to start, as are the top ten largest weighted MLPs in the Alerian MLP Index, because they are larger and more sophisticated companies. In the last few years off the top of my head, there have been serious accidents at a plant owned by EPD and a mine operated by ARLP (both listed above), but that's not a reason not to own them, in my opinion. EPD is the largest MLP there is (until KMP combines with EPB), so an accident at one of their many plants or along one of their many pipelines is not going to have a material impact on their operations, especially given that insurance tends to cover the accidents.
ARLP is one of the best coal operators there is and takes safety very seriously (I experienced this first hand when I went deep into one of their mines back in 2006), but it came out that they had been cited for violations prior to their accident in 2010. Mining is a dangerous business, if that's a concern of yours, I would steer clear of that one.
A pipeline spill a few years ago at EEP (not on my list above), caused oil to spill, but that has proven to be an opportunity to buy them at this point.
that's a tough assumption to make given that many people hold these for long periods of time to take full advantage of tax deferrals. I just left out dividends and distributions entirely when comparing stocks to MLPs above. Given the wide disparity of yield (2.8% for stocks vs. 5.8% for MLPs), fair to say MLPs still come out ok.
That still qualifies you as an early adopter, and probably make you a happy unitholder.
Good to know you have owned EPD since before it was even a public company, you must be a billionaire...
No argument here, that is certainly a risk that I wouldn't know how to quantify. Only ETN I use is AMJ for short term risk management, or trading. The short ETN was interesting, but needs more liquidity.
You're looking at it the right way. I think you've hit on all the major points that will be addressed in the roadshow presentation for NRGM...seems like the market is going to wait and see how the IPO valuation shakes out before giving NRGY much credit.
I think a few quarters of execution and outperforming expectations from NRGY would do more than this financial engineering (and I mean financial engineering in the best way possible, because it will be a net positive for NRGY)
GLP and NRGY are others with wholesale and retail distribution businesses, yielding more than 8%.
MLPs are not by law required to pay out all of their cash, just fyi.
They are required to derive almost all of their revenue from certain qualifying income sources, but high cash distributions just a function of what worked for MLPs early on to sell them as income vehicles to retail investors, and the practice has persisted til present day. It is true, they have minimum quarterly distributions set by their partnership agreements, but the penalty on not achieving those is a loss of cash flow to subordinated units and a beaten down unit price.
right, a pipeline company like LINE...and how much pipe do they own? Last I checked they were an oil and gas exploration and production company...
wow, Cramer likes FGP? That is easily the worst propane MLP to own, while the other propane MLPs (SPH, APU, NRGY) have grown their distributions over time, FGP has not, makes FGP tough to own in a rising interest rate environment with no growth to offset interest rate increases...ETP is also a good MLP with propane exposure (Disclosure: own NRGY).
I agree, that's why KMP management would like to get rid of KMR, costs them money.
I generally believe there are MLPs out there that are better to own than KMP. I've written in the past about how difficult it will be going forward for KMP to grow given its huge size and the % of cash that goes to the GP. There are smaller MLPs with less cash going to the GP that have business lines that are less risky or at least have business-risk that's on par with KMP. The problem for most owners of KMP is that they've probably owned KMP for years and stand to pay substantial taxes taht they've to this point deferred...
depends on the price, but the end game might be to have KMR unitholders folded into this new KMI at some point, and so you may not have to decide to add KMI, mgmt may do it for you....KMR's excessive discount to KMP share price costs KMP money and drags on growth, so they need to get rid of it at some point, particularly if they have another vehicle that is institution-friendly
Visit my profile for more in depth 4 part summary of the basics of MLPs, including this first one from December 2009...
there are plenty of others as well...PAA, ETP, EPD, CPNO, RGNC, NGLS, TCLP...also, just under 6%, but with growing distributions, look at EPB, SEP, and WMZ...also, typo there on "Kinder Garden", should be Kinder Morgan.
I think there is still risk that they suspend the distribution entirely for a few quarters, that's the other shoe that could potentially drop here. I agree in the long term viability of the company, and management indicated their insistence that the coverage ratio of the current distribution is over 1.0x. On the other hand, at the MLP conference in September, management gave no indication whatsoever that a distribution cut might happen, it was all happy talk, so I'm not sure they have much credibility.
I am long ENP as well, and I agree that DNR deal should add support to ENP's growth going forward. On the conference call for the EAC deal, DNR management indicated that ENP was strategic and that GEL (DNR's other MLP) was not as strategic...it turns out GEL's GP will change control and be under the control of Quintana in a recently announced deal.
I took some profits on our MLP positions (like EPB, BWP, CPNO, and ETE) yesterday on the positive news pulled up natural gas and everything else energy. Still kept the positions on, just peeling some profits off the top and rebalancing.
Good article. Other good MLP that I like in addition to EVEP is ENP, which has a strong parent company (EAC - to be bought by DNR), and has grown through acquisitions, and has increased its distribution this year. I also like VNR and LGCY for less heavily traded and followed names.