The stock has lost 2/3 of its value since April so I’ve started reviewing their financials. It is a complex company with a lot of moving parts. It looks like they generate about $4B of OCF with $600MM of sustainable capex (this number worries me). This equates to a 10% yield of distributable cash flow.
The $43 billion debt load is concerning but their business appears stable enought to support this level.
Does anyone here follow KMI and have any feedback on this company?
Their corporate structure is confusing AF. In my prior life working in Big 4 accounting land, I heard through the grapevine that its auditors were sometimes perplexed by KM because there were no real peers to model it off of, or compare it to. Not sure how their re-conversion to a C-corp last year impacted their financial reporting, as I’ve never dug too far into the company.
few things:
maintenance capex no is a joke
heavy debt load, might be junk soon
equity markets are closed to them, so are debt markets
have a $2B capex program in 2016, and a $5B capex program in 2017
how are they going to pay for it?
dividend will likely get slashed in half next year, just to pay capex.
plenty of downside still.
Palantir, I agree that there is still some downside. I came up with $11 using some simple math. What do you think maintenance capex should be?
A value investor isn’t going to be worried about a dividend cut if fundamental cash flow is strong. I’m buying free cash flow, if the company chooses to spend some of that free cash on accretive projects great. But if a firm’s value is derived primarily from debt market access, then I start having questions about the valuation attached. Capital market access comes and goes. Some great opportunity exists during the periods were lack of access exists. I think back to MIC in 2008. One of the best trades of my life. Couldn’t access capital markets, a sub went bankrupt, but they had some cash flows remaining. Turned out to be a fantastic trade. I won’t call the bottom on KMI today. But I think there is value. There are some even more attractive yield investments out there now though in better areas like electricity.
^so?
I think its intriguing. I prefer Spectra Energy b/c it’s always been easier to understand for me.
The combination of (i) oil and gas exposure and (ii) heavy debt loads has been sold off hard in the equity market. These companies are in the debt markets very often so that probably scares some people.
There’s been some weird stuff going on with these energy infrastructure companies the last few trading days. Very aggressive sell offs. It feels like there’s been some forced liquidations.
There’s been a ton of malinvestment in the North American oil and gas industry over the last 4 years and that scares people b/c its been funded with debt. They see lots of debt on companies like Kinder, Spectra, Enbridge, etc. but they aren’t the bad actors in the industry. Very good companies, high debt totals or not.
dividend cut from 51c to 12.5 c
FCX cut their dividend entirely today. Glad to see, I don’t need the dividend as badly as they need the cash.
On a related note, any thoughts on MMP (Magellan Pipeline)?
^MMP is the gold standard of this space. Pricey though.