Antero Midstream (AM) - Stifel's take on Q2 Results
Posted: Fri Aug 02, 2019 9:43 am
Antero Midstream Corporation (AM, $8.43, Hold; Target $11.00) by Timothy D. Howard
AM's Water Strategy Supports AR's Production Growth, but Outlook Remains Challenged
Stifel is lowering to Hold -
Antero rolled out a cost reduction strategy to enable AR’s production growth to remain at 10% annually over the next few years. Lower costs are driven by operating efficiencies, service cost deflation and a new produced water strategy. The water strategy will be supported by Antero Midstream with development of a produced water pipeline system. In addition, AR reduced the amount of water used per well. While this negatively impacts AM, management believes gas production growth and the produced water system will mostly offset. Our model suggests that AM remains solid with dividend coverage at 1.1x and leverage near
3.5x in 2020. However, the natural gas macro environment remains challenging with limited visibility to improvement. When coupling this with AR’s cost structure, we do not believe allocating incremental capital to AM is appropriate. Accordingly, we are reducing our rating to Hold from Buy and target price to $11.00.
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MY TAKE: AM's dividend should remain the same through 2020. They lowered their water handling charges to help AR, which is wise since AR's growth is the driving force behind AM's growth. We will be publishing a fresh profile on AR next week. Read it carefully if you own AM.
AM's Water Strategy Supports AR's Production Growth, but Outlook Remains Challenged
Stifel is lowering to Hold -
Antero rolled out a cost reduction strategy to enable AR’s production growth to remain at 10% annually over the next few years. Lower costs are driven by operating efficiencies, service cost deflation and a new produced water strategy. The water strategy will be supported by Antero Midstream with development of a produced water pipeline system. In addition, AR reduced the amount of water used per well. While this negatively impacts AM, management believes gas production growth and the produced water system will mostly offset. Our model suggests that AM remains solid with dividend coverage at 1.1x and leverage near
3.5x in 2020. However, the natural gas macro environment remains challenging with limited visibility to improvement. When coupling this with AR’s cost structure, we do not believe allocating incremental capital to AM is appropriate. Accordingly, we are reducing our rating to Hold from Buy and target price to $11.00.
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MY TAKE: AM's dividend should remain the same through 2020. They lowered their water handling charges to help AR, which is wise since AR's growth is the driving force behind AM's growth. We will be publishing a fresh profile on AR next week. Read it carefully if you own AM.