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  • Understanding Your MLP's Financially-Engineered Equity Value [View article]
    User 12839421,

    Thank you again for your continued interest in our research and analysis.

    The key takeaway is that a shell corporation can be created around a cash-payout that is completely financed externally, with only a strong credit rating backing it. The example shows how a "bubble" around real assets can be created as in the case of financially-engineering a "propped up" distribution around real pipeline assets. This is why we encourage investors to use an enterprise free cash flow (free cash flow to the firm) model to value assets, not models based on the industry's cash flow definition or even the dividend/distribution, itself.

    We hope you have found it informative. Given the derogatory nature of your comments, we will not be responding further.

    Our best wishes,

    The Valuentum Team
    Oct 2, 2015. 10:32 AM | Likes Like |Link to Comment
  • Understanding Your MLP's Financially-Engineered Equity Value [View article]
    User 12839421,

    Thank you for your comment. We think there is some need of clarification.

    We've long been concerned about the MLP business model, and while we've received a tremendous amount of visibility as of late, of which we are grateful, we think it's worth pointing out that the MLP universe, as measured by the Alerian ETF AMLP, has fallen considerably since 2014. The points in this article are not new "news," as we've been warning about the space for much of its fall. A technical bounce in AMLP shares can only be expected, after the sharp fallout.

    Also, we've recently moved to neutral on Kinder Morgan, after shares collapsed from $40 to $29, our current fair value estimate of the firm, at this point in time (based on management's 2015 sensitivities). We continue to monitor deterioration in its fundamentals, however. We're very humble and grateful that Barron's recognized our call, and we think it is very helpful for individual investors to be aware of the tremendous risks to the MLP business model. To let such risks remain shoved under the rug runs counter to our mission of helping investors of all types.

    Our thesis has not changed, in any case.

    MLPs and midstream corporates have net debt to adjusted EBITDA levels that in themselves are worthy of junk status. But after layering on debt-like, cash obligations in the form of dividends and distributions, (nondiscretionary in the eyes of income investors or management), implied levels of leverage reach the teens in almost all cases, as much as 19 times in Kinder Morgan's case. This is an absurd amount of financial leverage, especially with respect to the heightened risk placed on assets that aren't completely immune to volatile commodity prices.

    Recently, it was noted that the equity markets are shut off to MLPs, and in light of their tremendous amounts of implied financial leverage (considering all cash, debt-like commitments), we think debtholders have grown more cautious as well, in part due to management teams' commitment to keep paying cash, debt-like obligations in the form of dividends/distributions; in the eyes of unitholders, distributions/dividends are looked upon as mandatory obligations. We don't think the credit markets should be open to the group either, unless there is a move toward taking down implied levels of leverage, and that means a reduction in the payouts. Bondholders may never see their principal again.

    Second, we think there a lot of confusion about the various measures of cash flow. We believe, however, that a focus on future economic value added (EVA) and return on invested capital in the context of a forward-looking discounted enterprise free cash flow model (free cash flow to the firm) is the proper way to value MLPs and midstream corporates, not on contractual levels of other measures of cash flow or on the distribution/dividend itself. We think there are significant systematic pitfalls that arise on valuing on the basis of distributions as well as the risk of systematic overvaluation with respect to comparable P/DCF analysis, even on future measures.

    Third, investors should be aware that in no way do most MLPs and midstream corporates cover their distributions and dividends with traditional free cash flow, as measured by cash flow from operations less all capital expenditures, the measure accepted in almost every other industry group. This represents a significant risk to the distribution/dividend, particularly in light of implied levels of leverage, that is not being properly communicated to investors, in our view. The risk of not generating sufficient free cash flow to cover the distribution/dividend is the same for an MLP or midstream corporate as it is for any other company that cannot cover the dividend either. Both have maintenance and growth capex.

    We appreciate your interest in our work. For more background on implied levels of leverage, please view the following:

    Kind regards,

    The Valuentum Team
    Oct 2, 2015. 10:27 AM | Likes Like |Link to Comment
  • 5 High-Yielding Strong Dividend Growth Stocks For The Long Haul [View article]
    Mr Nelson shared Valuentum's views on June 11:

    Thank you for noticing!

    Our kindest regards,

    The Valuentum Team
    Aug 31, 2015. 10:49 PM | Likes Like |Link to Comment
  • Why Disney's Disappointment Has Your Attention [View article]

    It is our pleasure, and thank you for the kind words. We hope you may visit us at Our best wishes.

    Kind regards,

    The Valuentum Team
    Aug 26, 2015. 10:07 AM | Likes Like |Link to Comment
  • 3 Anomalies Across Pipeline Equities [View article]

    Thanks for the question. It is a very good one.

    Because Kinder Morgan is a corporation, its credit analysis is similar to other corporate structures. We've looked at the company's credit from a number of different ways, this only being the latest, and all of them point to a non-investment grade assessment. Please peruse our archives for other analyses on the topic.

    We've provided the comparisons for illustrative purposes.

    All the best,

    The Valuentum Team
    Aug 12, 2015. 04:54 PM | 3 Likes Like |Link to Comment
  • Yum! Brands Shares Overpriced [View article]

    Thanks for reading.

    The price chart that you see is what was published on our website at Shares were trading at ~$92 at that time, and as expected, dropped significantly.

    Hope this helps.

    Kind regards,

    The Valuentum Team
    Aug 12, 2015. 04:45 PM | Likes Like |Link to Comment
  • 3 Anomalies Across Pipeline Equities [View article]
    Thanks for the comment!

    We don't want to take any credit for this call. We're just here to help.

    It goes without saying, however, that any call in the energy sector includes a take on energy resource pricing. It's the judgment that matters.

    Our continued best wishes,

    The Valuentum Team
    Aug 12, 2015. 10:57 AM | 4 Likes Like |Link to Comment
  • 3 Anomalies Across Pipeline Equities [View article]

    That's correct. KMI will eventually pay taxes.

    Kind regards,

    The Valuentum Team
    Aug 12, 2015. 10:49 AM | 3 Likes Like |Link to Comment
  • Berkshire Hathaway And Precision Castparts: A Combo We Like [View article]
    Thank you all for reading!!!

    Our best wishes,

    The Valuentum Team
    Aug 11, 2015. 04:08 PM | Likes Like |Link to Comment
  • McDonald's Turnaround Plan Not Turning Heads [View article]
    Thank you for commenting.

    We believe an unbiased view is best.

    Kind regards,

    The Valuentum Team
    Aug 9, 2015. 12:00 PM | Likes Like |Link to Comment
  • 20 Dividend Growth Stocks To Buy Today For Your Retirement Portfolios: Part 1 [View article]
    Remember investors, the forward PE is a short-cut to more advanced valuation analysis. For example, a company with $100 billion in cash on the books should have a higher P/E ratio than a company with $1 of cash on the books, all else equal. When the company with $100 billion in cash wastes it, its P/E will shrink , all else equal and independent of earnings. Beware of such short-cuts in analysis!

    Wishing you a wonderful weekend,

    The Valuentum Team
    Aug 9, 2015. 11:31 AM | Likes Like |Link to Comment
  • Why Linn Completely Suspended Its Distribution [View article]
    Hi thanks!

    Sorry for any confusion. Our article covers why Linn has recommended to the board to completely suspend its distribution, in our opinion, instead of recommending a trim to it.

    Here's the statement from the quarter:

    "'After careful consideration, management has decided to recommend to the Board of Directors that it suspend payment of LINN's distribution and LinnCo's dividend at the end of the third quarter 2015 and reserve approximately $450 million in cash from annualized distributions. The Board and management believe this suspension to be in the best long-term interest of all Company stakeholders," said Mark E. Ellis, Chairman, President and Chief Executive Officer."

    Thanks for reading!

    The Valuentum Team
    Aug 4, 2015. 10:02 AM | 1 Like Like |Link to Comment
  • Higher Maintenance Costs Could Hurt Pipeline Dividend Growth [View article]

    We continue to monitor the situation as spill concerns remain in the Santa Barbara area:

    We've revised our wording to "thousands," but it remains an estimate at this time. In any case, ongoing pipeline spill concerns will only support the underlying thesis of the article regarding higher maintenance costs.

    Thank you for contributing.

    The Valuentum Team
    Jul 30, 2015. 07:40 PM | Likes Like |Link to Comment
  • Gilead Blows By 2Q Estimates; Investors Getting Drug Pipeline For Free [View article]

    Thanks for the question.

    We make all of our valuation information available on our website at

    Thank you for reading, and we hope you enjoyed the note.

    Kind regards,

    The Valuentum Team
    Jul 29, 2015. 10:24 AM | Likes Like |Link to Comment
  • Palo Alto Grows To New Heights [View article]

    Thanks for reading all the way through! We have specific valuation and technical criteria that we prioritize. A good business is not always a good stock.

    Kind regards,

    The Valuentum Team
    Jul 21, 2015. 04:36 PM | Likes Like |Link to Comment