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gas earnings +1

09:33 22-Feb-18


Well, the Macquarie Infrastructure Corp report and conference call certainly were interesting.  To my mind, it is a harbinger of things to come in America, especially when taken together with the Cheneire Energy Partners report.  In short, several customers of tank capacity for low-grade fuel oil are not renewing contracts.  In response, management is undertaking an effort to re-purpose tanks to liquids that will be more in demand.  It anticipates that the expense for this will have a 3-4 year payoff.  In addition, the recent tax act should have a 1% hit to FCF in 2018.  In light of that and a rising interest rate environment, the 2018 quarterly dividends are being cut from $1.44 to $1.00.  MIC shares will go ex-div on the last $1.44 2017 Q4 dividend on March 2nd.

For those who haven't already seen, that's the same ex-date that was just declared for the 54 cent dividend on CTL.

Getting back to MacInf, as I'd already alluded, concern over tax impact was one of the reasons I had avoided the high yield before now.  The dividend reduction is also predicated upon a desire to de-leverage the balance sheet.  In order to further that goal, while funding the tank conversion, management is contemplating sale of other assets, starting with some of its stake in the Bayonne Energy facility that it bought from Hess and expanded over the past couple of years.

This precipitated a pre-market drop of over 27% in MIC and a firestorm of questions from analysts whose investors are probably bearing the brunt of it.  One them went so far as to ask, given the financing resources that have been touted in the past,
Why are credit investors getting the better deal and equity investors getting the short end of the stick?
I'm not going to bother recapping management's non-answer.  My own is three-fold:
  1. because that's what always happens in a cash crunch.
  2. because the outlook for long-term American growth deteriorates seemingly by the month.
  3. because governance in the U.S. has become so unpredictable that businesses that can are beginning to look elsewhere.
Supporting #3 was discussion of a Democratic unseating the incumbent Republican in Westchester county, and the associated uncertainty that brings to the privatization of the local airport.  All things considered, I'll still look at MIC as an ephemeral opportunity, but my price range for doing so would now be close to or under $40.  It just might get there...

There's not much to say about Cheneire Energy Partners, other than to contrast its steady progress from sales to international customers against the domestic issues that MacInf is preparing for.  In particular, Chinese demand is seen as the beginning of a long-term structural shift.  That's tempered by the dip in Korea which was associated with the change in governance there. 

Note that I do not plan to always report on CEP quarterly earnings as they wind up being fairly unimportant compared to intermittent notes on construction or other developments.  That said, I continue to see CQH as a good, safe dividend, though without the rebound prospects of cash cows like CenturyLink.