Rich is Losing His Patience

Rich Kinder Co-Founder, Chairman, and CEO

Rich Kinder
Co-Founder, Chairman, and CEO

Rich Kinder officially reached “irked” status on Friday with the recent stock performance of Kinder Morgan, Inc. (NYSE: $KMI). The gargantuan (or mucho for my Texas friends) GP hit a 52 week low of $30.93 the day before, as analysts again raise concerns over $KMI’s ability to grow distributions from such a large base ($100+ Billion enterprise value for the family of $KMI companies) in a rising interest rate environment.  Mr. Kinder is an investors CEO, often in the market buying the stock on dips.  In the month of February 2014 alone he made three separate purchases that totaled 400K shares at a cost of $12.7 million (not bad for a guy that takes in a salary of just $1 a year) for an average price of $31.70 per share.  His open market purchases are normally enough to encourage investors to get behind the stock and establish a floor on the price, but instead it’s been the case of “how low can she go.”

KinderMorgan-Logo

The company’s Friday press release was entitled “Kinder Morgan Expects to Meet or Exceed 2014 Financial Expectations.” The presser seems to be completely market / steam coming out of Rich’s ears driven as it provides no new information.  It simply reiterates the companies $14.8 billion backlog and budgeted dividend growth of 8% over the prior year ($1.72 per share), both of which were well telegraphed back at the $KMI analysts day on January 29.  The fact that $KMI emphasizes “exceed” is also not news, as Rich is known for fully deploying the UPOD (under promise and over deliver) theory when it comes to distribution growth.

The stock reacted positively to the Friday news, up more than 2% in a down market tape. The fact remains though that presser’s alone will not solve $KMI’s tired stock performance.  Over 50% of the company’s backlog is tied to a single Canadian pipeline project and it’s also concerning that just two years after $KMI absorbed El Paso the growth story is gone.  However, investors get paid a 5% yield to wait around and if history tells us anything its to never bet against Mr. Kinder.

Christmas Comes Early to Dividend Lovers

Yesterday Anadarko Petroleum ($APC) filed an S-1 registration statement to take the General Partner of Western Gas Partners $WES public.  The GP will be named Western Gas Equity Partners, LP and trade under the ticker $WGP.  $WGP will own the 2% GP interest in $WES, all of the Incentive Distribution Rights (IDR’s), and a 47% limited partner interest in $WES.  Basically the GP’s only asset will be its investment in $WES and its preferential right to a larger portion of the cash distributed.

This is a great potential long term investment for those yield hungry investors.  $WES is only 5 years old and $APC has billions in midstream assets for potential drop drowns, which 2013/2014 could see significant growth in distributions.  The table below represents the “hypothetical” distributions for $WGP over the next six years.  Basically this table tells investors you can buy $WGP and if management executes on the plan in the next six years we plan to increase distributions by 60%.  That does not include the likely rise in the equity value of $WGP as the units increase in value in harmony with distribution growth.  Of course no one can predict what will happen in six years, but this is pretty good picture for investors to knaw on.

S-1 Projected Growth of $WES Distribution: LP & GP Portion

The only downside in my view in this announcement is that $WGP is not a C-Corp or an LLC, but rather an LP.  This means the owners of the GP will also receive a K-1 at year end for tax purposes, instead of the simpler 1099-DIV.  $KMI, $WMB, and $SEMG chose the C-Corp route for GP ownership.  The C-Corp route is preferred by institutional investors and friendly to tax deferred accounts.

$WGP should be a great investment for yield investors, but after last nights US election all investment decisions should be re-evaluated.  The US is likely to go over the fiscal cliff, receive another downgrade from rating agencies, and face a shrinking GDP.  All of those factors are recipe for a recession and likely put pressure on equity values in the short-medium-long term time period.

Entreprenuer: GoGo SqueeZ

I am constantly amazed by entrepreneurs that find a niche that serves a need the market never even knew that it wanted.  Last night on Twitter I ran across a Forbes article on GoGo SqueeZ.  This company markets crushed apples in a package that you can eat right out of the package and charges a huge premium.  Then they also manufacture the product in a 100% natural, gluten free, BPA packaging free, wheat free, vegan friendly, no fructose corn syrup way that makes you feel like paying that “organic” type of premium is justified.  The product is flying off the shelves, growing top line revenue from just $6 million two years ago to over $100 million a year.  I have no idea how many 3.2 ounce individual packages that would be, but my guess is a lot, like millions per year.   

This is one of those ideas that after you see the success you say, “why didn’t I think of that?!?@#$ %*&%^!!!”  Truly amazing story and an example of how the market can constantly be re-invented when entrepreneurs develop products that consumers never knew they could not live without.

Like all good start-ups (and well run businesses in general) GoGo SqueeZ followed its strategy:

1.  Identify the Niche

2.  Exploit the Niche

3.  Constantly Meet & Exceed your clients expectations

4.  Execute, Execute, Execute

Bravo GoGo SqueeZ, Bravo.

Uinta Basin: Valuation Reset

On November 1, Canadian E&P Crescent Point Energy announced an $861 million acquisition of Ute Energy’s Central Basin (CB) assets in Utah.  This represents Crescents first entry into the basin, and really its first entry deep into the US.  This transaction provides a good valuation reset for other operators in the area:  $BBG, $BRY, and $NFX.  Current Ute production is 7,800 boepd, and when you back out the $700 per acre placed on the acreage, they are paying $124K per producing barrel. 

Crescent Point Energy Operating Areas

Crescent is an E&P that falls under the radar since it only trades on the Toronto Stock Exchange, and has typically only operated in Canada.  However, it pays a hefty $.23 cents per month dividend, which at today’s price of $39.62 produces an annual yield of 6.9%.  The company has low leverage as well with just 10% debt-cap.  The bountiful dividend and monthly payout (think compounded re-investments [12 instead of typical 4]) are attractive, but the Canadians take out 15% for dividend taxes and you end up paying higher commissions to buy on the TSX.  Still, not a bad stock to add to the shopping list if the dividend where to creep higher. 

Bottom line on Uinta: 

  • Valuation has been reset with this M&A deal
  • Interesting to see if CB shale oil / horizontal drilling can become economic
  • Look for other larger independents to enter the play if successfull

Certified in “SIC” Management

$OXY CEO, Stephen I. Chasen

Every CEO should be required to obtain the “SIC” certification in management.  SIC stands for Stephen I. Chasen (SIC), Occidental Petroleum’s long term finance man, and since May 2011 it’s CEO.  Basically if a CEO is SIC certified he lays out a clear and precise strategy for investors, he reports honestly on the progress (both good & bad), and he holds his employees accountable for meeting targets.  Here are some highlights from his no non-sense statements from Thursday’s conference call:

SIC:  “If for some reason our investment plans do not result in successful stock market results over the next few months, we will return more of our retained earnings to our shareholders……we intend to raise dividends next year at a rate that will maximize returns to shareholders.”

Translation:  $OXY will appreciate in the next 3 months or we are sending shareholders more cash via dividends.  This is bullish for long term holders of $OXY.

SIC:  “If I do not see the proper returns in the coming quarters our strategy will change.”

Translation:  Stockholders will make money by either the stock appreciation or higher dividends.  Once the stock appreciates we will return to investing more capital in the business.

SIC:  “More capital discourages prudent spending……..half the shareholders think I should spend $20 billion CAPEX, the other half think I should spend $2 billion……..If they (Operations) do not get their operating cost down, which is what I am most focused on, because that translates immediately into profits, then we will continue to tighten there and their will continue to be changes in management…….especially in the Permian.  If they do not do it soon there is going to to be wide spread changes in the organization.”

Translation:  I am cutting rigs to prove to the operations team that I am serious about cutting costs. Every BU better lower costs, or they will be fired and we will get someone in there that can lower the costs.  #BOOM  #ACCOUNTABILITY

SIC:  “Oil guys can only work on one thing at a time.  So if you tell them you want volume growth, then volume growth will show up.  But if you tell them you also want something else, only volume growth will show up.”

Translation:  Like all humans, only one BHAG (Big Hairy Audacious Goal) at a time is all my managers can handle.

SIC:  “If the relative performance does not improve we will return more money to the stockholders.”

Translation:  I repeat, stockholders are # 1 priority for this company.

Their is probably another 10 examples I could share, but I think you get the point.  SIC takes his job as a steward of the stockholders money seriously, he holds his management accountable for short-medium term goals, and he is smart enough to change his strategy if market conditions warrant.  The $OXY conference calls never disappoint, but this one was classic.

Also, it’s interesting to note this was the first CC for the new CFO Cynthia L. Walker.  The 35 year old Mrs. Walker is a former Goldman Sachs managing director (from H town office) and became an executive vice president and CFO on Aug 6.  Besides reading from her prepared remarks, Mrs. Walker was otherwise silent on the Q&A portion of the call.  M&A is obviously in her wheel house, but SIC made clear on the call no significant M&A is in $OXY’s foreseeable future.  Makes you wonder if the debits and credits will keep this CFO interested.

Mail Box Money: WYNN Resorts Dividends

Steve Wynn is # 1 Shareholder Friendly CEO

Steve Wynn is # 1 shareholder friendly CEO.  On Wednesday WYNN Resorts announced an $8 special dividend and raised their regular dividend 100%, from $.50 per quarter to $1.00 per quarter.  Prior to earnings release the stock was trading for $113 in change, which equates to a 2011 yield of 8.8%.  Assuming another $8 special dividend in 2013 and the yield rises to 11%.  Did I mention that WYNN resorts is also growing bottom line earnings 4-6% and has a $4 billion Cotai project in the backlog?  Not many investments come along with significant yield, significant growth, and a pristine balance sheet.  WYNN resorts is the ultimate mail box money for stock investors. 

Investing in CFA

If you ask the general public (or even a business professional) to define a certification for excellence in financial markets, you probably would get a variety of answers:  Certified Public Accountant, Certified Financial Planner, or perhaps Certified Management Accountant.  The truth is that all of those are on the B team of certifications, the gold standard of financial markets certification is the Chartered Financial Analyst (CFA). 

This “gold standard” endorsement was validated by the recent CFA survey of June 2012 exam takers.  When asked “about how many hours did you spend preparing for the June 2012 CFA exam,” the average was 291 hours for those that Failed the exam, and a wopping 309 hours for those that Passed.  That equates to 12 complete days of studying, or equivalent  of 15% of the annual average work year. 

Investing in the CFA is a costly investment of time and resources, but this certifcation creates knoweldge that pays dividends for decades to follow.