The Current State of Midstream with Chris Sighinolfi

Nathan Kroeker is the President and CEO of Spark Energy (SPKE). Tune in to hear Nathan describe Spark Energy’s business model and why he thinks SPKE stock is undervalued. Nathan also shares his thoughts on the outlook for the industry, and an explanation as to why the retail energy services business is misunderstood by the broader market. Most importantly, he outlines the most important aspects of the SPKE investment story and highlights the key elements of a really compelling investment idea.

Spark went public in 2014 and was largely considered a roll-up story. Retail electricity businesses were trading really low multiples. So, SPKE could use its public currency, which carried a higher multiple, to roll-up private retail business at lower multiples. Recently, however, Nathan Kroeker shifted the company’s priorities to organic growth, and to optimize the business. Management expects to achieve 20M in cost savings from some discrete integration initiatives, which is a big deal for a company that generates less than $100M in EBITDA. Cash flows could grow meaningfully next year for Spark, especially since earn-out payments from previous acquisitions will be completed by mid-2019.

Chris Sighinolfi is a Managing Director and research analyst with Jefferies Research. Chris is one of Wall Street’s top-rated analysts covering midstream, MLPs, and natural gas services. In this episode of The Stock Podcast, Chris provides an excellent primer for the midstream/MLP sector. It’s a great interview with Chris providing a lot of context and insight into an undervalued subsector of the energy industry. If you’d like to learn about midstream space from one of the best analysts on the Street, this is the podcast to listen to.

A super educational interview with renowned Syria and Middle East expert, Professor Joshua Landis, the University of Oklahoma’s Director of Middle East Studies. Tune in to The Stock Podcast to hear Dr. Landis discuss the Trump Administration’s decision to renew sanctions against Iran, the Syrian Civil War, and the Kurdish problem in the Middle East. And, most relevant to some listeners, listen to Dr. Landis discuss the geopolitics of oil. A great podcast for anyone who would like to learn more about what’s going on in the Middle East, and some of the implications for energy markets and the geopolitics of energy. Check out Josh’s blog, Syria Comment, to learn more about what’s going on in the region.

Professor Joshua Landis is one of the most well-respected and knowledgeable Middle East experts around. Cumulatively, he’s spent years in the Middle East, in Syria and Lebanon in particular. Dr. Landis’ blog, Syria Comment, is one of the most widely read blogs on the Syrian Civil War and the Middle East as a whole. Full disclosure, Dr. Landis was a former professor of mine, so it’s a particular pleasure to have him on the program to talk about some of the most interesting developments in the Middle East, and how those developments are affecting the geopolitics of oil.

Brad Slingerlend and Brinton Johns are the co-founders of NZS Capital, LLC, an investment firm that focuses on innovative businesses that demonstrate non-zero-sum (NZS) characteristics. If you’re wondering what non-zero-sum means in investing, you really have to listen to this episode! Brad and Brinton are veteran tech investors with a top tier performance track record. Together they oversaw the Janus Henderson Technology funds for nearly 10 years. Over that period, they honed and perfected their investment philosophy and principles, which they share in this episode.

Bahir Manios is the CFO of Brookfield Infrastructure, one of the largest diversified infrastructure companies in the world. Tune in to hear Bahir discuss BIP‘s asset portfolio, investment philosophy, and a very compelling investment story.

Kris Kelley is the founder and managing partner of Legacy Ridge Capital Management, a private investment firm that Kris started in 2018, shortly after he left Janus Henderson Investors. Kris has some strong views when it comes to the money management industry, views I personally agree with and ones I think every investor should hear. Kris is a value-focused, contrarian investor who believes the best way for active managers to serve their investors is through highly concentrated portfolios.

Now, if you were to ask a hundred value investors who had the greatest impact on their investment philosophy and principles, I’m sure you’d hear a lot of the same names – Warren Buffett, Charlie Munger, Ben Graham, Seth Klarman, and Stanley Drukenmiller. These investors have most certainly had an impact on me, but Kris has hands-down had the greatest impact on my investing philosophy….and that’s because Kris was my mentor during my six years at Janus. He’s one of, if not the greatest investors I know personally, he lives and breaths value-investing, and the perspectives he shares in this interview should open everyone’s eyes to a flawed industry.

Tom O’Flynn is the CFO of AES Corporation (AES). Tom provides a great overview of AES Corporation’s business model. He also discusses some really interesting catalysts for the company and highlights a compelling investment case for the shares of AES’ stock.

AES is a power company, but it’s different from regulated utilities, IPPs, and yieldcos, yet at the same time has similar characteristics. The asset portfolio includes traditional generation facilities, renewables, and a lot of the essential infrastructure required to produce and transmit electricity. Since the current management took the reins in 2011, they’ve pruned the portfolio, with more than $5B in asset sales over the past 7 years and exited 13 countries. During that time, management reduced parent level debt by $2B, cut costs by $300M, and they’ve returned almost $3B of cash to shareholders.

Part of the return to shareholders has been through dividends, and AES has also bought back about 16% of their stock since 2011. Another interesting fact is that the company has reduced coal generation capacity by about 20% over the past three years, and they’ve replaced a large portion of that capacity with renewable energy. De-risking the business has also been a key priority. Management has reduced AES’ FX exposure to around 15% from 40%.

Maybe one of the most interesting facts about AES Corp is that they are the largest owner of battery storage in the world, and the recently announced storage JV with Siemens called Fluence. The Fluence JV positions AES extremely well for the future. One of the reasons the battery JV is so interesting is because of the growth outlook. Generally speaking, growth investors aren’t interested in utilities. That’s because, double-digit earnings growth in utility-land is almost unheard of, at least not on multi-year outlook.

Another potentially big catalyst for AES Corp includes IMO 2020. This is a gross oversimplification, but IMO 2020 puts a cap on the amount of sulphur shipping vessels are allowed to use in fuel oil. This global regulation bodes well for global LNG demand. And with respect to debt, individual projects financed with non-recourse term debt, which means there is a natural deleveraging component to the business.

Something I like about this management team is that they’re focused on what they know, understand, and where they believe they have a competitive advantage. This perspective led to reducing the number of countries where they operate and becoming more acutely focused on developing and owning long-lived infrastructure assets.

NRG Energy’s CFO Kirk Andrews rejoins The Stock Podcast to provide a business update. Tune in to hear Kirk describe NRG’s path to investment grade and what that could mean for the equity value of the company.

NRG is an integrated power producer. The company owns generation assets that primarily sell power at wholesale prices. NRG also operates a large portfolio of retail electricity companies. The integrated nature of NRG’s asset portfolio provides investors with stable cashflows. When power prices are high, the generation business benefits. When power prices are low, the retail business benefits. It’s an impressive mousetrap with high barriers to entry.  

Duke Austin is the CEO & COO of Quanta Services (PWR). Quanta provides E&C contracting services and comprehensive infrastructure solutions for electric and gas utilities, oil and gas companies, and the communications industry. Tune in to hear Duke describe his business, the outlook for US energy infrastructure and 5G build-out, and the financial goals Quanta is targeting.

Chris Whalen is the Chairman of Whalen Global Advisors, an author, and co-founder of Institutional Risk Analytics. Chris is recognized as one of the investors who anticipated the eventual bankruptcy of Lehman Brothers and has a reputation as one of the foremost banking analysts on Wall Street. Tune in to hear Chris discuss banks, interest rates, and the leadership changes at the Federal Reserve on The Stock Podcast.

If you’d like to learn more about Chris Whalen, you should check out his blog here. Also, I highly encourage anyone interested in learning more about interest rates, credit spreads, and the dynamics behind bank earnings power to subscribe to the Institutional Risk Analyst. And if you want to dig deeper, you can purchase the quarterly IRA Bank Book.

Will Eglin is the CEO of Lexington Realty Trust (LXP). Tune in to hear Will describe Lexington‘s portfolio transformation from a commercial REIT to an industrial REIT, the outlook for the LXP dividend, and the most important insider’s perspective on the value in LXP stock.

Lexington Realty is a REIT that has been around for years. But the business model has changed over time. Today is one of those times of change, especially as management sees the writing on the wall with respect to commercial real estate values and rents. LXP has already started the process of transitioning from a commercial REIT to an Industrial REIT. In order to achieve this goal, management has plans for re-rating the LXP dividend to a lower level.

Despite the dividend pause, there appears to be value in LXP stock. At the time of this interview, net debt is down to a manageable 4.3x EBITDA, and the company has completely repaid its revolver. Management has committed to buy back shares, while at the same time determined to transform itself into an industrial REIT by acquiring industrial properties – potentially up to $200M of industrial assets this year alone.

Assuming the company can execute on their plans, the LXP dividend could be resumed at 55-65% of 2019 FFO. I’ll note that consensus pegs the LXP dividend at $0.40-$0.48/share. That’s down meaningfully from 2017, but still juicy enough for The Stock Podcast and rationale real estate investors to Lexington Realty’s shares.

One concept that every student learns in business school is Porter’s Five Forces. So I thought that with this episode I’d  walk through Porter’s Five Forces for podcasting businesses. It’s a good way to demonstrate some of the things I’ve learned over the past year, while at the same time provide listeners with an annual overview. I’m also using this episode as an opportunity to talk about some changes to The Stock Podcast. At the very least, you’ll learn about one of the most well-known concepts in finance used to analyze the competitive landscape.

Kirk Andrews, EVP and CFO of NRG Energy (NRG), discusses the history of NRG and describes some of the big factors that have affected the merchant power generation industry since the turn of the century. Part 1 of the Kirk Andrews interview provides some really interesting background on the power business in general, and fascinating insights into possibly the most underappreciated subsectors in the market today.