The KMI fantasy continues to shrivel, along with its “vaunted” DCF and its CAPEX. The CAPEX narrative is part of what fueled the myth surrounding KMI. Richard Kinder is self-serving Ponzi master who learned his trade under Ken Lay at Enron. He was sucking money out of KMI at a rate of close to half a billion dollars annually by the time the banks forced him to slash and burn the dividend.
Per yesterday’s earnings report for its Q1 2016, Kinders revenues and earnings continue to decline. What happened to the famed “stabilility in earnings and cash flow” – the narrative promoted by Wall Street, the media and the Company itself? The legend had it that Kinder’s contracts insulated the Company’s cash flow from volatility in the energy market. Operating income continues to plunge, falling 24% from Q1 2015 to Q1 2016.
But IRD did some bona fide research and buried in the Company’s 10-K – a place that no self-serving Wall St. analyst would ever tread – is a disclosure revealing that more than 25% of Kinder’s revenues is sourced from buying and selling natural gas and CO2 in the State of Texas. Furthermore, Kinder discloses that its revenues and cash flow are highly correlated with the directional movements in the price of oil, natural gas, NGL (natural gas liquids).
The other part of the myth that is imploding is the CAPEX story. The stock price was fueled by the narrative that Kinder would spend money to make money. But now not only has the Company already lowered its cash flow guidance for 2016 – guidance that was promoted vigorously when it announced Q4/yr-end 2015 results – but Kinder has chopped down its CAPEX spending guidance as well. Why? Projects were cancelled because there were no customers for them. KMI was borrowing money every quarter to fund CAPEX and the dividend. Yes, borrowing money to pay money out to shareholders, namely the Chairman.
Kinder’s debt load net of cash actually increased in Q1 from the end of 2015. It’s tangible book value (stripping out goodwill) is $5.31 per share.
My Company report on Kinder Morgan backs up every assertion I make above and lays out a view of the Company that will surprise most investors, especially the ones who are still “stuck” in the stock. I explain why Kinder Morgan had become a Ponzi scheme dressed in drag in an analytic presentation that you not find like this anywhere: You can access my report here: KINDER MORGAN.