Finding Nirvana? - Antero Midstream - AM

I think Antero Midstream is a stock with a safe 6%+ yield, that cautious value investors should at least consider as a “utility substitute”.

Nirvana is great concept. One definition from the Indian religions is “a state of perfect quietude”

That definition takes me to one of my favorite quotes, from the French physicist Blaine Pascal:

“All of humanities problems stem from man’s inability to sit quietly in a room alone”

Nirvana to many portfolio managers is a stock the just that slowly grinds along and they do not have to worry about. AM is a stock just like that.

AM collects tolls from its “sister company”, Antero Resources - AR, to remove the natural gas liquids and then deliver the gas to a pipeline. The tolls are the ultimate consistent business, but there can be some variability in the pricing of the NGL’s. Strong export demand for NGLs, has reduced that variability. AM has a slew of great slides in their presentation that explain the business. AM does benefit from more LNG exports. AR’s gas reserves have 20+ year lives. AM has a safe leverage ratio of 3.1x EBITDA.

AM is not a Limited Partnership, LP, but it acts like one. AM pays out 70-80% of its earnings in dividends, and does not try to grow very fast. AR is a very low cost gas producer in Appalachia. They kept their gas gathering/NGL business separate from their exploration business in order to reduce their cost of capital.

AM is perhaps more predictable than a utility, because there is no regulatory commission to worry about. With regulators often playing political games, a strong case can be made that AM is more reliable.

These days almost all portfolio managers are required to be fully invested. For many years I have threatened to start a public company called CashCo. It would just roll over short-term t-bills. Portfolio managers could use CashCo to be fully invested, without taking any market risk. My idea would work. Clients would just think CashCo was another operating company. I guess I would change the name to something exotic, maybe Quixote Holdings - QH.

AM is as close to CashCo as a portfolio manager can get. AM is truly Nirvana, perfect quietude.

So here I sit, all alone in a quite room thinking about whether AM is a better investment than Northwest Natural Gas - NWN. Right now I want to understand AM a little better, but AM might be the best 6% yield stock I can find. Oops, almost time for the 6th race at Saratoga, so much for the quite room.