Approaching Dividend Cutoff to Support Kinder Morgan

Kinder Morgan (KMI) reported neutral third quarter results. During the reporting period, the company closed asset acquisitions. The dividend is kept at $0.27 per share.

The company’s revenue in the third quarter increased by 31% YoY, to $ 3,824 million, thanks to an increase in gas transportation and sales volumes by 2.8% and 9.8%, respectively, as well as due to an increase in the volume of transportation of petroleum products by 12%. Strong demand for LNG has a positive impact on the company’s results, as Kinder Morgan provides 50% of the gas supply for LNG production in the United States. Transportation volumes can be expected to continue in the fourth quarter. The United States Department of Energy predicts a 6.6% increase in LNG exports.

The operating profit of Kinder Morgan in the reporting period amounted to $844 million (+ 3.1% YoY). Adjusted net income increased 4.1% YoY to $ 505 million.

The company’s net debt increased by $1.4 billion qoq, to ​​$31.7 billion, due to the purchase of assets for $1.5 billion. The volume of cash and equivalents in Kinder Morgan accounts fell to $ 102 million.

On July 9, Kinder Morgan closed the $ 1,225 million purchase of Stagecoach Gas Services LLC, which owns 41 billion cubic meters of natural gas storage facilities. feet and 185 miles of gas pipelines. The company was valued at 10 EBITDA in 2020, which, with a projected 2022 EV / EBITDA ratio for KMI of 9.6, gives grounds for a neutral assessment of this transaction for the buyer.

On July 16, Kinder Morgan announced a $ 310 million acquisition of Kinetrex Energy, which owns two small scale LNG plants as well as a 50% stake in Indiana’s largest renewable natural gas (RNG) plant. In addition, Kinetrex has signed commercial agreements to start construction of three more plants. When commissioned next year, the total annual production of HSG at these four sites could exceed 4 billion cubic feet. KMI predicts that the ratio of purchase price and capital expenditure for plant construction to EBITDA in 2023 will be 6.

We view Kinder Morgan’s financial statements as neutral. At the end of the quarter, the company’s board of directors approved the payment of dividends in the amount of $ 0.27 per share with a yield of 5.8% per annum to current quotations (the dividend cut-off will take place on October 29, payments are scheduled for November 15).