A new position
Two weeks ago I established a small, my smallest, actual position in a very atypical position for me. It’s a company called Antero Midstream (AM), and it builds infrastructure for moving natural gas and wastewater from fracking for a company called Antero Resources (AR). It’s quite profitable and raises dividends every quarter. I found out about it by accident when it was recommended by a Zack’s service that I subscribe to but rarely pay attention to. My reason for paying attention was that I thought that with the change in Administration its prospects have probably materially improved and I might as well ride the wave.
The Zack’s service gave almost no information about the company so I searched on Seeking Alpha and found an article about it. It was seven months old but still full of information. Here’s what I gleaned from it:
Antero Midstream is a midstream MLP (Master Limited Partnership) which had a late 2014 IPO, and a potentially bright future. While the company’s partner, Antero Resources doesn’t have quite the global clout that Royal Dutch Shell has (Shell Midstream’s sponsor), AR has quickly risen to being one of the most dominant players within the domestically-produced onshore energy market. It has dedicated itself fully to its new offshoot, putting in place a twenty-year commitment with AM that makes AM the sole provider of gathering and compression services on AR’s current and future acreage (besides acreage previously committed to third parties). As a result, AM has exclusive rights to serve as a distributor on 435,000 acres at the end of 2015 (along with serving other operators who own nearby acreage).
It is important to realize just how reliant AM is on AR. For example, 97% of 2014 revenue and 99% of 2015 revenue came from AR. Third party revenue is basically non-existent.
However, this relationship does go both ways. AR is a large shareholder of AM (roughly 74% of the diluted share count). As a result, AR does have a vested interest in AM shares doing well. Once the dividends reach a certain level, the general partner gets 50% of the excess, which works two ways: it gives the general partner motivation to pay out dividends to the stockholders, but stockholders get less of the dividends.
For the last seven quarters
EPS has gone
2015: 18 13 23 27 2016: 24 27 37
Adjusted EBITDA has gone
2015: 60 65 72 83 2016: 80 88 111
And Dividends have gone
2015: 18.0 19.0 20.5 22.0 2016: 23.5 25.0 26.5 28.0
I took my little position at $33.25. I am well aware that this is out of my area of expertise, but there it is. If any of you know anything more about MLP’s or this one in particular, I’d love to hear it.
Oh, and they just raised guidance for 2017:
• Distribution growth guidance is 28% to 30% yoy
• Targeting 28% to 30% compound annual distribution growth through 2020