JotCast | Energy & Income Advisor Live Chat April 2019

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Energy & Income Advisor Live Chat April 2019

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Roger Conrad

4:22

TransCanada will report earnings May 3 and Pembina on May 2, so we'll get a progress report then for ongoing midstream projects. But at this point, there's no indication we won't see another solid performance for both, as they have continued to execute on projects. TRP shares continue to trade with prospects for the Keystone XL pipeline, though they don't need it to meet growth guidance. But both of these stocks look cheap and safe to us at this time.

Roger Conrad

4:26

As for the REITs, SKT has its hands full with online retail it appears, so its dividend is something of a long term question mark. The half cent increase is a lesser boost than a year ago. SPG appears to have run up with the REIT sector in general this year. There may be some more room to run depending on the market. But like the majority of the coverage of Deep Dive Investing's REIT Sheet, there's no much value at this time.

Michael

4:34

Do you think the regulatory environment in Colorado will be much of a headwind for MPLX?

Roger Conrad

4:34

They don't appear to face a lot of near term risk from regulation, though we will likely get more color on this and other issues May 8 when they release first quarter results. The company's pipelines are apparently near capacity and the focus of growth has been the Permian "super system" and Gulf coast exports. That means Texas regulation is really the most important thing, though there are a lot of assets in the Marcellus/Utica of Appalachia. So no we don't see Colorado as a significant headwind.

Andrew

4:37

I realize this isn't part of EIA, but any comments on AT&T's results today? Seems a mixed bag, but nothing terrible. Any change in your investment thesis?

Roger Conrad

4:37

I really didn't see anything unexpected there, certainly nothing to justify some of the dramatic headlines--which centered around "bleeding customers," primarily from the pay television business. I intend to put together a briefing of my thoughts on T and VZ earnings for Conrad's Utility Investor readers after the close of this chat. But the short answer is AT&T's long-term strategy of integrating content with network while slashing debt appears to be on track and the stock is very cheap at 8.5 times expected 2019 earnings.

Michael L

4:42

Roger, after you've had a chance to look, I'd like your thoughts on Spirit Realty Capital (SRC). Just recommended by the Morningstar dividend group. Appears SRC just took on new management, who unloaded bad assets and has moved to a Realty Income type of model ( all NNN Leases with big credit companies) may still be somewhat of a turnaround story, but interesting.

Roger Conrad

4:42

I'll take a look at it. The dividend cut they took last year was substantial and they'll need that cash cushion with $403 mil in debt maturities this year and another $345 mil in 2021. Longer-term, the Realty Income model has proven to be a good one to follow. I'll look to pick it up in coverage in the DDI REIT Sheet.

Andrew

4:50

Question about Nextera Engergy Partners (NEP). It is considered the 'gold standard' but from all I can see, it has to resort to financial gymnastics to get funding at a good level. They pay out nearly all their CAFD, yet have the lowest yield. To me this seems more risky than say Atlantica, or Clearway, who have a strong sponsor, but don't pay out as much of their CAFD. Is it as safe as the market seems to imply given their yield?

Roger Conrad

4:50

If you're analyzing NextEra Energy Partners, you've got to also look at their parent NextEra Energy (NYSE: NEE). It's been NEE's contracted assets, implicit financial guarantee and forbearance of IDRs that are responsible for NEP's success and continued 15% annualized distribution growth. They've been steadfast and the result is NEP is now the gold standard in the yieldco space for reliability of distributions and growth. Don't get me wrong, I think AY and CWEN offer a lot more upside from current levels than NEP--which is trading above our buy target. But they face pretty much the same challenges as NEP when it comes to financing--which is why CWEN cut its distribution this year and AY is involved in a strategic review.

MartyR

4:55

as you recommended the upstream as a good way to play oil what are the best 2 for price appreciation and 2 for income

Elliott Gue

4:55

OXY has a solid yield of 5% and, as we noted earlier, we thing the dip on its APC offer is a good opportunity there. We also like MRO, which has a yield of just 1.1% but remains a solid and diversified growth story. I'd also mention CXO, a leading player in the Permian. On the yield side, apart from OXY you might want to look at the majors -- Shell is a name I'm looking at closely and have written about recently, which has a near 6% yield and stron growth and free cash flow prospects.

jim

5:07

Do you have thoughts on BEP prospects for stock appreciation. I trust the dividend is safe and plodding at around 6%. Is there any upside story?

Roger Conrad

5:07

Over time, dividend increases will push the prices of dividend paying stocks higher. The case for Brookfield Renewable is basically that they are adding assets, optimizing them to boost output and earnings and occasionally selling. The result is an increasing base of contracted power generation assets that boost available cash for paying dividends. My view is that will result in average annual shareholder returns in the neighborhood of 10%, which is pretty much what the return is for the past 12 months.

DRG

5:09

What's your view on TRGP ?

Roger Conrad

5:09

I don't really have anything to add to my answer eariier in the chat. We rate it a hold and cover it on the EIA website under the MLP coverage universe. The risk is that the distribution is thinly covered and cash flow is affected by commodity prices. There's also a fairly high debt load, though major maturities don't fall until 2023.

Andrew

5:13

You've mentioned before how much excess NG is produced in the Permian and how it has no way to market. When Kinder gets its GCX pipeline up in Oct and the PHX next year and maybe a third one, do you see that as putting pressure on East Coast NG prices and hence production? If so, how reasonable is it for AM to expect an increase in fee based income from AR? Or do you see LNG exports as soaking up this additional supply?

Roger Conrad

5:13

Bringing new Texas associated gas to market--Kinder actually has 2 pipelines under construction for that purpose and a third in planning stages--will all else equal drive down gas prices across the country. And delays at the Atlantic Coast Pipeline and Mountain Valley Pipeline will all else equal depress the price of gas in Appalachia. So far, there's no indication this will interfere with Antero Midstream's infrastructure plans--which include water services for third parties. We'll see more May 1 when Q1 numbers are released and the company has its guidance call. But at this point AM/AR appear pretty well positioned to compete with new Texas gas.

Andrew

5:14

No question, just a comment, Thank you both for these chats. I especially want to thank Roger for taking a non-EIA one about ATT. I really appreciate you both and what you do.

Roger Conrad

5:14

Our pleasure. Thanks for tuning in today and for subscribing to EIA!

John

5:17

Interest rates inverted about a month ago and now the yield curve is steepening. Looking at past charts it seems like rates invert, bounce back and then invert again. My question is - When does the clock start on the 18 month average time before a recession starts? And the average is 18 months, what is the median length of time?

Roger Conrad

5:17

As you've just pointed out, the yield curve is hardly a perfect forecaster of the economy. Rather, we use a 10 point "checklist" to determine recession risk. Right now, there are only 3 of these indicators at levels where recession is a real risk versus 7 that don't. And one of those warning is an aggressive Fed tightening policy, which will be flashing green again in the next few months barring a change in policy. That's why we're not concerned about a recession at this time, though we will take our cue from the indicators.

Elliott Gue

5:26

John -- I looked at yield curve inversions and the startr of recession going back to the 50s in sister publication Deep Dive Invetsing a little over a month ago. By my calculation the time from first YC inversion to market peak averages about 670 days and the median was about 625 days (I don't have the exact numbers in front of me).

Pablo

5:46

Roger, could you please expand on your comment concerning AY being in a strategic review. When I see this term I think of APU and others being rolled up or distribution cuts coming.

Roger Conrad

5:46

In Atlantica's case, it's 42.5% owned by Algonquin Power & Utilities, which has stated it has no interest in owning more than 50% of AY since that would require consolidating the books. AY management has also stated clearly that they are not considering options that would require a dividend cut, but rather courses of action to held reduce their cost of capital. And Algonquin has stated it would use its veto power for any action that would hurt shareholder value. We'll learn more about what's being planned in mid-May when Q1 results are announced. But from all indications if there is anything on the strategic review it will not be a negative.

Pablo

5:51

Any new information or thoughts on CWEN and PEGI and their troubles with their PG&E contracts?

Roger Conrad

5:51

PG&E is still paying on its contracts, though it is pursuing its "rights" in bankruptcy court to walk away or renegotiate them. We continue to believe that any successful exit from Chapter 11 by PG&E will require them to either honor the contracts or reach an amicable deal with providers like CWEN and PEGI. That's because it has to ultimately get the blessing of California and rejecting these contracts would doom the state's decarbonization goals. Unfortunately, this is going to take some time to play out, so no certainty anytime soon on contracts. What we do know, however, is PEGI has almost no exposure to PG&E, while CWEN has taken its off the table by cutting its dividend.

DAS

5:54

Thoughts on GLOP?

Roger Conrad

5:54

We rate it a hold on soft distribution coverage and the general partner GLOG's continued high pricing of drop down transactions. We believe there's not much upside to the distribution with market conditions for tankers this soft. We could also see a roll-up merger at some point.

Roger Conrad

6:08

Well that looks like all we have in the queue for today as well as from emails we received prior to the chat. As always, Elliott and I would like to thank everyone who joined us today. There will be a complete transcript available for viewing on the EIA website shortly after I close the chat. We look forward to talking to you next month. In the meantime, if you have a question please send it to us at service@capitalisttimes.com.

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