JotCast | Energy & Income Advisor Live Chat May 2019

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Energy & Income Advisor Live Chat May 2019

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Roger Conrad

3:47

In the article I spelled out several very tough criteria for making it on the High Yield Energy list. Our view for sometime has been that too much distribution risk is priced in for Delek Logistics, which operates in one of the steadiest midstream sectors. I would not rule it out as a candidate for this list--but we wanted to focus as least initially on MLPs where risk of a simplification merger was extremely low. There's no indication now that a deal has been contemplated but the cost of equity capital is high for DLK and the GP does own 62.66%. It's a fine aggressive income investment but a little higher risk than our other picks.

Mack

3:52

Haven't talked about CPLP much since the split. The price has really dropped and even with the new div the yield is over 12%. But is the div safe? Yields this high are usually a warning sign.

Roger Conrad

3:52

We still track it in the MLP Ratings coverage universe on the EIA website. Current advice is hold. We believe management has set the dividend at a level post-spinoff/merger that's sustainable given the current industry capacity glut. Shares may have come under pressure again due to concern about global trade flows with the US/China trade dispute. Our primary reason for not featuring it more prominently, however, is we don't see a lot of upside catalysts for this sector in the next 12 to 18 months. That's a big contrast to midstream names, such as those on our High Yield Energy list.

Mack

3:57

Are you still considering adding HMLP to one of your lists?

Roger Conrad

3:57

It's possible and we're always looking at candidates. At this point, however, we rate Hoegh LNG a hold because we don't see a lot of upside catalysts. The decision not to raise the distribution this year is a pretty clear warning of the scarcity of growth opportunities in what's become an oversupplied LNG infrastructure industry. And until conditions change, we're likely to look elsewhere for high yield energy.

Marty

3:58

Thanks so much for adding the High Yield Energy Target list. It's exactly what I need as a conservative income growth oriented investor in the energy sector. Perfect, thanks so much!

Roger Conrad

3:58

Thank you! As I wrote last issue, we intend to increase the size of this list going forward--but only when a stock/MLP meets those criteria.

Eric

4:07

Elliott, sorry, that was MPLX - terrible chart, good numbers. What do you think?

Roger Conrad

4:07

We don't really have much to add to what's been said earlier in the chat. That is in brief that the merger with ANDX should be strongly accretive, affirmed by credit rating upgrades this month. And shares have lagged the MLP sector this year in large part as a reaction to the partnership being an acquirer. We think that makes for an opportunity, which is why it's on our High Yield Energy list.

Robert P.

4:24

Hi Roger and Elliott, being a long time subscriber, recently went to the Las Vegas Money Show. They desperately need analysts like both of you to help identify investments to the private investor. Missed you guys.

Roger Conrad

4:24

Thanks Robert. We appreciate the complement. The one thing I can say that Elliott and I really missed from skipping the speaking "circuit" the past year is talking in person to readers like you. I wouldn't rule out a return at some point, but it's also true the Money Shows take a lot of time we could otherwise spend researching and writing. We'll keep you posted if and when our plans change.

Elliott Gue

4:26

Thanks for saying that! As Roger said, we always enjoyed meeting readers like you at the Money Shows. We try to do more online presentations these days and we've been toying with the idea of hosting a conference in future though, to be honest, it's probably more of an after 2020 possibility. If anyone is interested in that though, we're open to suggestions.

DRG

4:57

What’s the reason, other than lower WTI, for CXO to trade near its 52-week low?
BTW, introduction of the High Yield Target List is a great move. Thanks.

Roger Conrad

4:57

Thank you for your comment! One other reason for the weakness in Concho and other Permian Basin-focused producer is concerns about transportation capacity given the potential for so much output growth. We've said before we believe these concerns are overblown--so do companies like Chevron and ExxonMobil that have been investing heavily in the region. Concho managed the feat of lifting output 46% in Q! while cutting production expense by -7% We think that's the kind of performance that will again earn the stock a premium multiple.

Robert P.

5:07

In analyzing a stock for income, I often look at outstanding shares as part of the process. Since Antero Midstream has merged (AM) into 1 company and is no longer an MLP. They have gone from 187M shares to 506M outstanding shares. Do you feel the dividend is safe and will continue to grow, or should I think about selling and putting the funds to better use with a more safer or certain distribution? Also, when I invested in AM, one purpose was to capitalize on some price appreciation when the 2 companies merged. Any thoughts on appreciation. Best, Robert

Roger Conrad

5:07

There's been no real change in the guidance set for Antero when this simplification merger was announced. And Q1 results should lay any doubts to rest about potential dilution from a greater number of outstanding shares. Remember that Antero Resources holds 31.26% of the stock, which effectively means only about two-thirds of shares outstanding are actually in play. They're still expecting 18% annual DCF growth from new assets that they'll be self funding. As for performance, it's basically been in line with MLP averages since the merger, though it's no longer an MLP. I expect shares will start to get some credit for strong company performance--but it may take some patience.

Andrew

5:37

Can you comment on ENLC? I get most mid streams are down, but it's being priced like a dividend cut is coming. Once Devon sold their interest to GIP and ENLC committed to at least 5% div. growth per year (and have made quarterly increased equal to or greater than 1.25% sequentially ) that their price would rebound, but instead it is a steady zig-zag downward slope.

And thanks again for holding these chats. I look forward to them every month.

Roger Conrad

5:37

Thank you very much for tuning in! There's nothing in the Q1 numbers to suggest a distribution cut is imminent with coverage of 1.35 times and debt to EBITDA of 3.7 times both strong and in line with guidance. The company also is progressing with its expansion in the Permian Basin, where demand is heavy. I agree the chart looks terrible as does the trend for most energy stocks right now. It may also be a while before the price reflects business growth. But post merger there are no IDRs and the company should be able to self fund growth.

Pablo

5:39

Can you comment on TXN and why it’s included in an energy portfolio. I follow the company and like it’s future but I wonder what connection you guys see see it having with energy.

Roger Conrad

5:39

One reason is semi-conductors are increasingly important to the energy business, for electric vehicles obviously but for oil and gas and other aspects as well as companies work to make their equipment and facilities more efficient. Stocks like TXN will never make up more than a fraction of the portfolio but you will find us taking these positions from time to time when it's advantageous.

DAS

5:42

ET price fall - a warning or opportunity?

Roger Conrad

5:42

Opportunity, it's pretty much moving in line with the rest of the sector. As I said earlier in the chat, the Q1 numbers all came up great for Energy Transfer LP and there's every indication they will the rest of the year. That's why we made it a charter member of our High Yield Energy list.

Roger Conrad

5:43

Well that's pretty much what we have in the queue this time. Once again, Elliott and I would like to thank everyone for participating and especially for subscribing to Energy and Income Advisor. If you still have questions, feel free to pitch them at service@capitalisttimes.com. See you next month!

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