Inergy, L.P. forecasts 15% EBITA growth for 2009
Inergy, L.P. | Investor Relations | Press Release.
Inergy, L.P. (NRGY: 19.60 +0.89 +4.76%) has released their 4th quarter and year end results. The company had a nice year and was able to increase distributions by 7% over 2007. Inergy has increased the distribution for 28 consecutive quarters. The company has two main business lines: Retail propane distribution and midstream natural gas processing. I found several items in the press release linked above to be of special interest:
The midstream business is entirely fee based. This allow them to avoid the fate of the product sales based midstream companies like Atlas Pipeline Partners (APL: 7.97 +0.64 +8.73%). For the year, Inergy’s gross profit on midstream operations increased 59% to $92 million.
Annual propane sales of 331.9 million gallons were 30.3 million gallons less than in 2007. The primary cause was customer energy conservation due to significantly higher prices. In spite of the lower volume sales, Inergy still generated propane sales and service profits of $410.3 million was $11.7 million higher than for 2007.
The most interesting revelation in the press release was the reiteration of 2009 EBITA guidance of $277 to $294 million. This is a very nice increase over the $239 million earned in 2008. The low end of the 2009 projection is a 15% improvement over 2008 and the high end represents a 23% bump.
It appears Inergy will be able to continue its streak of growing distributions for the forseeable future. The current distribution at the current share price give a better than 15% yield. I would consider this stock an excellent value for those looking for long term growing income. When the market realizes after a couple more dividends that the growth will continue, this will be a $25 stock again.
Note: NRGY is a component of this site’s hypothetical Income Portfolio.
Penn West Energy dropped from Income Portfolio
Today I have “sold” the position in Penn West Energy (PWE: 12.91 +0.87 +7.23%) out of this site’s Income Portfolio. The combination of falling oil and natural gas prices, a stronger dollar and growing unfavorable Canadian tax laws have driven down the stock price. I believe the next shoe to fall is a cut in the distribution. U.S. shareholders have already taken a 17% payout reduction on the dollars strength.
I will be looking to replace the position with some possibilities of early dividend capture. I have sold 2 positions, PWE and City Bank (CTBK: 5.50 -0.09 -1.61%) without adding any replacement to the portfolio. High on my list of possible additions is the Claymore/Zacks Yield Hog ETF (CVY: 13.26 +0.06 +0.45%). I will also scan through the income stocks on my Watch List. Tune in next week for updates.
Ship Finance increases dividend
Ship Finance International Ltd..
Ship Finance International Ltd. (SFL: 12.49 +0.46 +3.82%) has declared a 60¢ dividend for shareholders of record as of December 23. This marks the 19th straight quarter that Ship Finance has maintained or increased their dividend. Based on Wednesday’s closing price the stock carries a hefty 22.6% yield. I am expecting a nice pop in the share price today.
When looking at the numbers for Ship Finance, first ignore the 65¢ per share net income. The structures of their ship leases do not include the profit built into the leases into net income. What they call the operating revenues of $114 million, or $1.57 per share is the free cash flow the company has to pay the dividend, pay down debt or invest in more ships. Ship Finance has a business model unique in the shipping industry. They lease their ships on long term (15 years is not uncommon) contracts with low debt to value financing and accretive earnings from the 1st day. Their profit sharing agreement with Frontline Ltd. (FRO: 31.62 +0.60 +1.93%) allows them to profit in the volatile spot market without the volatility. See my article on FRO from earlier today.
In my opinion Ship Finance has been seriously misjudged by the market worried over dry bulk indexes and daily charter rates. SFL management has built an earning machine that spits out steady, increasing free cash flow and dividends. This stock should be $30 and yield 8%.
Note: SFL is a personal holding and a component of this site’s hypothetical Income Portfolio.
Frontline slashes dividend
After paying dividends of $2.75 and $3.00 for the first two quarters of 2008, Frontline Ltd. (FRO: 31.62 +0.60 +1.93%) has elected to pay only 50¢ for the 3rd quarter to shareholders of record on Dec. 9. As the largest publicly traded oil tanker company, Frontline has been popular with investors due to their generous dividend policy. Since 2001 FRO has paid out over $53 per share in dividends. As I have cautioned many times when discussing tanker companies, these companies pay out dividend on the amount earned in the quarter by leasing their ships on the spot market. These dividend will vary wildly and the patient investor will be rewarded, but there will be some bumps along the way.
Looking at Frontline’s 3rd quarter numbers the daily charter rates for their VLCC, Suezmax tankers, and Suezmax bulk carriers were not much below the 2nd quarter numbers. The net income is a little hard to decipher with shares issued, ships bought and sold and some one-time gains and losses in the quarter. My bottom line analysis is that the company is conserving cash rather than continuing the generous payouts. Tanker daily charter rates have started to fall significantly in November and FRO has an aggressive new building program that will require over $1 billion in additional cash or borrowing in the next 3 years.
My interest in Frontline mainly comes as a shareholder of Ship Finance International Ltd. (SFL: 12.49 +0.46 +3.82%). Frontline leases the majority of their tankers from Ship Finance (FRO spun off SFL about 5 years ago) and Ship Finance participates in the per ship profits of the leased vessels. I was happy to see the profit sharing paid to SFL in the 3rd quarter was $28.5 million compared to $33 million in the 2nd quarter.
Ship Finance will report earnings later today and I am very interested in their results. The stock has been knocked down by 2/3 recently. A final note on tanker company and stocks. Frontline is the big gorilla in the tanker market and their long term fleet growth plans will eventually reward shareholders with piles of dividends. However, FRO has a daily break-even of $24,800 for their Suezmax tankers. Nordic American Tanker (NAT: 36.85 +2.46 +7.15%) with their small, all Suezmax fleet has a break even of less than $10,000.
Note: SFL and NAT are components of this site’s hypothetical Income Portfolio.
New Energy Finance - NEX - Weekly Review
Each week I recap the results of the WilderHill New Energy Global Innovation Index, symbol NEX, and published by New Energy Finance Ltd. The index consists of approximately 90 stocks from 22 countries. The NEX is the tracking index for the PowerShares Global Clean Energy Portfolio ETF (PBD: 13.31 +0.32 +2.46%). For reference, the NEX has a 52 week high of 461.56.
For the week that ended Monday, 11/24, the NEX fell 6.2% to 150.49. The low for the week was 133 on Thursday. The NASDAQ declined just 0.7% and the S&P 500 gaind 0.1% for the time period. AMEX Oil, carrying the proxy for conventional energy, gained 4.0%.
Hydrogen and fuel cells was the only postive sector in the NEX, gaining 5.4%. The sector with the biggest loss was energy storage, shedding 9.6%. Solar energy and ‘renewable-other’ (think geothermal and water) both fell 9.1%. Loss leader for the week, Suntech Power Holdings forecast a zero gross margin for the near future. Biofuels and biomass fell 6.3%.
Here are the top and bottom stocks from the NEX for the week:
NEX top gainers since 18 Nov 08
Plug Power PLUG + 28.0%
JA Solar Holdings JASO + 18.7%
Johnson Controls JCI + 17.9%
Sao Martinho SMTO3 + 16.4%
American Superconductor AMSC + 14.0%
NEX top losers since 18 Nov 08
Suntech Power Holdings STP - 41.3%
Aventine Renewable Energy AVR - 39.8%
Theolia TEO - 37.2%
Verenium VRNM - 33.5%
Evergreen Solar ESLR - 25.2%
