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Antero Midstream Reports Good Enough Q4/2016

|Includes: Antero Midstream Partners (AM)

Antero (NYSE:AM) reported Q4-16 DCF that was under the Q3-16 number. But that still provided great distribution coverage. The spreadsheet below shows the 2017 Antero provided EBITDA guidance. I used the run rate DCF/EBITDA ratio to produce my own DCF guidance. I used run rate 'unit count' growth (meaning it is still an educated guess) to then make a home made DCF/unit number - which is in line with some of the more bullish DCF projections from the brokerages. The credit metrics are declining from 'too good to imagine' to merely 'great'.

AM did not start to reporting with sufficient metric transparency until Q2-16. I could use the 2016 reports to generate 2015 numbers - but it will require Q1-17's release to have good Q1-16 numbers.

From the earnings release: 2016 "Adjusted EBITDA was $404 million, a 45% increase compared to the prior year. . . . . Distributable cash flow was $353 million, resulting in a DCF coverage ratio of 1.8x. . . . . Antero Midstream increased its 2017 capital budget from $525 million to $800 million. Additionally, Antero Midstream increased its 2017 Adjusted EBITDA guidance to $520 million to $560 million and reaffirmed its compound annual distribution growth target of 28% to 30% and increased its DCF coverage target to greater than 1.25x through 2020. Antero Midstream is targeting leverage in the low 2-times range over the corresponding period."

The "DCF coverage target to greater than 1.25x through 2020" implies at least double digit distribution growth until 2021. The 2016 guidance was overly conservative. The AM footprint is in the Marcellus - another growth story. This is a distribution growth story in which one can have some confidence. But still, one needs to never put all your eggs in one basket. Diversify when you buy high CAGR stocks. My current assessment is that AM is one of those growth eggs one should be holding. If I were not overweight in MLPs already, I would be buying AM - even at its 3.27% yield.

My earnings spreadsheet on AM:

Antero Midstream metrics

  Q4-2016 Q3-2016 Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014
Revenues 166,854 150,475 136,810 135,830 131,693 81,704 88,093 85,835 100,718
Costs 82,953 76,192 83,503 89,451 79,793 37,012 51,333 51,922 42,758
EBITDA 126,293 110,545 87,701 79,570 83,195 71,537 40,772 35,676  
DCF dollars 102,969 103,085 77,505 69,318 72,359 50,110 36,795 32,689  
GPs DFC dollars 7,557 4,807 2,731   969 295 000    
Net DCF dollars 95,412 98,278 74,774   71,390 49,815 36,795    
Units 178,195 176,395 176,172   176,016 153,959 151,882    
DCF/unit $0.5354 $0.5571 $0.4244   $0.4055 $0.3236 $0.2423    
Upcoming Distrib. $0.2800 $0.2650 $0.2500 $0.2350 $0.2200 $0.205 $0.1900 $0.1800  
Coverage 1.91x 2.10x 1.70x   1.84x 1.58x 1.28x    
AM's 2016 guidance wa for $325-$350 in EBITDA and $275-$300 in DCF -- or approx (290 - 15)/176 = $1.56
AM's 2017 guidance is for $520-$560 in EBITDA and this implies (my numbers) $440-$480 in DCF -- or approx (460 - 52)/200 = $2.04 (my number)
WF DCF/unit   $0.56 $0.42 $0.38 $0.41 $0.32 $0.24 $0.22  
CS DCF/unit   $0.4093 $0.40 $0.37 $0.36 $0.2716 $0.24 $0.22  
JPM DCF/unit   $0.41 $0.xx $0.xx $0.xx $0.27      
R James DCF/unit   $0.56 $0.42 $0.38          
LTM EBITDA 404,353 361,011 322,003 275,074          
Run Rate EBITDA 505,172 442,180 350,804 318,280          
Long Term Debt 849,914 820,000 760,000 680,000 620,000 620,000 620,000 620,000  
Long Term Debt/(RR)EBITDA 1.68x 1.85x 2.17x 2.14x          
Long Term Debt/(NYSE:LTM)EBITDA 2.10x 2.27x 2.36x 2.47x          
WFC Pro Forma Debt/EBITDA   2.2x 2.4x 2.3x          
AM has $650 million in 5.375% senior notes due 2024 (rated B1 by Moody's, which is approx a BB S&P rating) plus a credit facility
Interest Expense 9,008 5,303 3,879 3,461 2,062 2,404 1,636 1,586  
Interest Coverage 14.1x 20.8x 22.6x 23.0x 40.3x 29.7x 24.9x 22.5x  

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.