Antero Midstream (AM) Valuation Update - Feb 17

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Antero Midstream (AM) Valuation Update - Feb 17

Post by dan_s »

Antero Midstream (AM) is one of the rock-solid midstream companies in our High Yield Income Portfolio. It was created by Antero Resources (AR), which has been one of the top preforming companies in our Sweet 16. It is AR's commitment to steady growth that supports AM's revenue growth.

AM has announced a much lower capital expenditures budget for 2023, which means they will generate more free cash flow that will be used to pay down debt and eventually lead to higher dividends. AM's likely to keep dividends at $0.225/quarter this year until they reach their debt reduction goal.
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From the 2-16-2023 press release:

2023 Capital Budget and Guidance

Antero Midstream is forecasting Net Income of $340 to $380 million and Adjusted Net Income (adjusted for amortization of customer relationships and effective tax rate impact) of $395 to $435 million. The Company is forecasting Adjusted EBITDA of $930 to $970 million and a capital budget of $195 to $215 million. Antero Midstream is forecasting mid-to-high single digit low pressure gathering growth in 2023 compared to 2022. This growth is driven by organic production growth on Antero Midstream's legacy assets and full year contribution from the bolt-on acquisitions completed in 2022. The Company's guidance includes four quarterly low pressure gathering rebates expected to be earned by Antero Resources totaling $48 million, which conclude at the end of 2023. Antero Midstream's 2023 guidance includes approximately $120 to $130 million of combined distributions from its interests in the processing and fractionation joint venture with MPLX, LP (the "Joint Venture") and in Stonewall Gathering LLC. This results in Free Cash Flow before dividends of $515 to $555 million and Free Cash Flow after dividends of $90 to $120 million for 2023, assuming an annualized dividend of $0.90 per share.

During 2022, Antero Midstream completed the core infrastructure buildout in the liquids-rich fairway in the Marcellus Shale supporting the growth from Antero Resources drilling partnership with QL Capital Partners. With the completion of these trunklines and additional compression, Antero Midstream's budget is expected to decline by $60 million year-over-year at the midpoint of the guidance range, or 23%.

The midpoint of the 2023 capital budget includes approximately $130 million of investment in gathering and compression infrastructure for low pressure gathering connections, expansion of a compressor station, and the construction of an additional compressor station that will be placed in service in 2024 in the liquids-rich midstream corridor. Antero Midstream has budgeted an investment of $75 million for fresh water delivery and wastewater blending and pipeline infrastructure in 2023. The Company is forecasting an immaterial capital investment in the Joint Venture in 2023.

Antero Midstream expects to invest approximately 55% to 60% of its full year capital budget in the second and third quarter during the summer months that are more favorable for infrastructure buildout. Over 90% of Antero Midstream's 2023 capital budget is focused in the Marcellus Shale and the remaining capital is focused in the Utica Shale.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Antero Midstream (AM) Valuation Update - Feb 17

Post by dan_s »

My updated valuation is $13/share, but AM is viewed as a "dividend play", so the share price won't move much higher until they raise dividends.

First Call's price target is $11.29

AM is a C-Corp. with an A+ safety rating. A good place to park some extra cash.

Annualized current dividends of $0.90 / current share price of $10.62 = dividend yield of 8.475%
Dan Steffens
Energy Prospectus Group
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