What are you buying today?

[rb]

Sorry I misunderstood your point. I though you meant if one of the pipe's customers goes bust. Yes, if you can't get people to commit to ship through the pipe. Then no build.

[Guest MarkS]

I'm  adding to my position in DHG, and starting a position in DRA. DRA is another closed end fund trying to reduce its discount to NAV. It's currently in a discount measurement period to determine if they will have a tender offer this year.

Thanks

[ABH]

SunEdison (SUNE) is getting slaughtered today and if you only look at it superficially that might make sense. Digging a little deeper reveals a lot of value here though so I've been buying it today all the way down.

[Palantir]

SunEdison (SUNE) is getting slaughtered today and if you only look at it superficially that might make sense. Digging a little deeper reveals a lot of value here though so I've been buying it today all the way down.

 

Feel free to add to the SUNE thread.

[shhughes1116]

How do replace commitments that don't arise? I think you are both focusing on how existing pipes make money and forgetting the demand for future pipes.

 

Existing pipes are the primary support for my thesis that ETP and EPD are reasonable purchases at the current price/yield.  I think the market is overly pessimistic about the state of the current business model. 

 

With that said, future pipes add a little bit of upside to ETP and EPD.  For instance, the ETE/ETP/SUN/SXL conglomerate has an EV of ~$100 billion (probably a bit less after today).  They have about ~$22 billion of planned projects, of which more than 75% of the projects appear to already have the firm committments neccessary for construction.  More than half of the $22 billion backlog appears to be interstate natural gas lines, NGL lines, and fractionating plants.  It is entirely possible that some of their planned pipes do not go forward...that is pretty normal in the pipeline business, and I don't think it prevents them from growing the distribution further.         

[Palantir]

What upside? They are barely covering their distribution right now and may get high single digits growth. Do you think they want to finance projects with equity yielding 9%? Now maybe they will because ETP is in the high splits and ETE benefits disproportionately from unit issuance. If you want upside why not do ETE?

[shhughes1116]

What upside? They are barely covering their distribution right now and may get high single digits growth. Do you think they want to finance projects with equity yielding 9%? Now maybe they will because ETP is in the high splits and ETE benefits disproportionately from unit issuance. If you want upside why not do ETE?

 

I already have shares in ETE to benefit from the IDR's and GP interest that they now have in ETP, SXL, and SUN.  These shares will also benefit from the Lake Charles LNG project, which I think has a 75/25 chance of moving forward given it is on a brownfield site in the Gulf area.  Ultimately I suspect that the Lake Charles LNG stake will be spun off as a seperate MLP under the ETE umbrella.  This benefits ETP for two reasons: (1) ETP holds a 40% stake in the project which has nameplate capcaity of 16 mtpa; and (2) The Lake Charles LNG site is serviced solely by ETP steel.  The 16 mtpa would be additional gas moving through ETP steel over and above what is already moving through those pipes right now.  Obviously there is the distinct possiblity that the Lake Charles LNG project will not move ahead, but if I had to guess, we will probably see three LNG projects built in the United States over the next decade (Sabine Pass, Lake Charles, and Cove Point).     

 

 

[ALiveH]

What upside? They are barely covering their distribution right now and may get high single digits growth. Do you think they want to finance projects with equity yielding 9%? Now maybe they will because ETP is in the high splits and ETE benefits disproportionately from unit issuance. If you want upside why not do ETE?

 

Almost 9% current yield with 7-8% growth is a pretty attractive high teens total return assuming the yield stays constant.  I believe it should trade closer to a 6% current yield given its safety, the ETE put, organic & inorganic growth levers.  Last week's transaction was instantly 30c accretive according to mgmt which locks in 4 more quarters of HSD distribution growth.  And the RGP transaction neutral this year, should start being accretive in 2016.  Beyond 2016, there's the $11 Bn project backlog.  And, there are other accretive financial engineering transactions they can do between energy transfer family members to clean up the structure

 

ETP mostly addressed the equity issuance question in the near-term (see the conference call) by being a bit more aggressive than usual in Q2 with ATM issuance and also the transaction announced last week retired 20M ETP shares and paid ETP $1 Bn cash.

 

ETE is holding up really well relative to ETP (~500 bps spread on current yield).  the spread when KMI rolled up KMR & KMP and when WMB attempted to acquire WPZ (all at ~25% premiums) were only 300-350 bps.  A couple weeks ago ETE CFO Jamie Welsh was asked directly on CNBC whether ETE would acquire ETP.  He said too much on the plate for energy transfer family this year but next year he might have a different answer.

 

ETP seems like a no-brainer at these levels to me.

[Palantir]

Buddy, you don't know that yield is staying constant. How exactly will these acquisitions be more accretive at this cost of capital? ATM program will not help!

[ALiveH]

Buddy, you don't know that yield is staying constant. How exactly will these acquisitions be more accretive at this cost of capital? ATM program will not help!

 

Go back and re-read my post.  I know the yield isn't staying constant, in fact I expect a year from now it will trade at a lower yield (higher price) & that the quarterly distribution is going to go up 2c / quarter for at least the next 1.5 years without having to do any new transactions & I explained why.  And if the cost of capital gets too high, the ETE put is there (which was the exact rationale for the KMR/KMI/KMP take-out and the attempted WMB/WPZ take-out).  Where else in this market can you buy a utility / consumer staple type business model with 100% tax-advantaged payout ratio that grows at HSD trading at 11.5x?

 

Also, I explained why they don't need to do much/any ATM this quarter.  They don't need to.  They just received $1 Bn cash in the latest transaction.

 

http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-newsArticle&ID=2067885

http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-newsArticle&ID=2067884

[Palantir]

good luck, in fact I expect a year from now the yield to continue to rise until Kelcy decides to consolidate. There are too many headwinds against this sector - lower oil prices, lower demand, higher interest rates, higher cost of capital, lower upside due to IDRs....time to invest in these things was 10 years ago, but typically after the growth has already happened the value investors are interested.

[Guest Schwab711]

OT but I preferred picturing you as Steve Ballmer.

[Lance]

NHF (Nexpoint Credit Strategies Fund)

 

Thanks,

Lance

[Guest MarkS]

Bought some shares in RIGP. IMHO it's a cheap stock.

[frommi]

LILA

[TwoCitiesCapital]

FNMAJ

OGZPY

[no_free_lunch]

SCTY

[wachtwoord]

WPZ (which I sold for 58 in may).

[shhughes1116]

WPZ (which I sold for 58 in may).

 

WPZ is a good one, two of the premier blue-chip NG pipeline assets in the United States (transco line and northwest line) - I think folks underestimate the value of the Transco line given location, supply points (Marcellus and GC), and numerous demand points,

 

Out of curiosity, is there a reason you chose WPZ rather than ETP ?  I like both MLP's, although ETP seems to have a similar yield with better growth prospects (at least so far as the committed backlog indicates)

[wachtwoord]

WPZ (which I sold for 58 in may).

 

WPZ is a good one, two of the premier blue-chip NG pipeline assets in the United States (transco line and northwest line) - I think folks underestimate the value of the Transco line given location, supply points (Marcellus and GC), and numerous demand points,

 

Out of curiosity, is there a reason you chose WPZ rather than ETP ?  I like both MLP's, although ETP seems to have a similar yield with better growth prospects (at least so far as the committed backlog indicates)

 

I believe the income certainty of WPZ is higher because a larger portion of their income and cash flow is fee based. Next to this ETP also has a gas processing and gathering unit and retail unit which have a smallee moat than the pipeline business. Morningstar awards WPZ a wide moat and ETP a narrow one.

 

On top of this I believe WPZ has another reason for the price being so depressed namely the takeover by WMB being at risk because of the possible takeover of WMB. I think the market has overreacted to this uncertainty and am fine with holding WPZ without a buyout.

[Palantir]

WMB has a lot more upside than ETP, which is going nowhere until Kelcy buys up the different entities, which he can delay by buying WMB.

[Lance]

IBM

 

Thanks,

Lance

 

[Ross812]

I'm buying Fairfax. Should be a 10-15% position (which is huge for me) when I'm done.

[drzola]

Fairfax India holdings

[Lance]

(FRFHF) Fairfax Financial Holdings Limited

 

Thanks,

Lance