Below is a note from CEO Keith McCullough on why we're adding Tall Grass Energy to the short side of Investing Ideas:
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Looking for Energy Shorts? You should be. It's a Top 3 Sector SELL during Quad 4. That's why Energy stocks have been bloody dogs for Q4 to-date. One of our Energy analyst Al Richard's favorite shorts remains Tall Grass Energy (TGE). Here's an excerpt from Al's Institutional Research note recapping part of the recent quarter: 3Q18 Results Recap…… Tallgrass reported adjusted EBITDA, which now includes deficiency payments, was $220MM in the quarter, slightly higher than consensus of $219MM. Proportionately consolidated operating EBITDA excluding deficiency payments was ~$258MM, flat sequentially and +9% YoY. The company took ~$410MM of REX debt onto its balance sheet in the quarter. Leverage at TGE stands at 3.5x 3Q18 annualized EBITDA and 4.5x annualized 3Q18 EBITDA on a proportionally consolidated basis. Flows at Pony were again strong at 340 Mb/d, 2% lower QoQ and up 26% YoY. Contracted volumes remained at 309 Mb/d and haven’t moved much despite the company placing the Platteville, CO and Kansas extensions online. The GP&T segment reported EBITDA ex. deficiency payments of $15MM, -6% QoQ and -2% YoY. Freshwater volumes went to zero as WLL finished up its DJ DUC program – WLL is contracted through 2020. The North Dakota water assets did ~$7MM in revenue, or ~$14MM through the first 9 months of the year. This approximates a 5.2x EV/sales multiple on the $95MM Buckhorn acquisition. In total, the GP&T asset base has increased by ~$430MM since 3Q17 with only EBITDA degradation to show for it. Sell the bounce, KM |
