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January
14, 2002; It Takes A Universe to Grow a Unit of Kinder Morgan Our
latest analysis of KMP, sent to clients on January 11, takes aim at an
inefficient growth model. If it
takes 84% per year growth in the business, as it did for the past five years,
for unit value to grow 12% per year, how much longer can unit value grow?
As soon as investors see that growth may end, they may then look to what
they have and they may find it is not very much. We
also explain more about how accounting can be misleading.
Here is another example. Check
book value per share. Market Guide,
available to retirement investors on Yahoo, lists KMP's book value at $23.99 per
share. Is that really a fair
representation when the general partner gets over half of current earnings and
40% of current cash flow? The
Market Guide number is doubly misleading in our opinion.
It seems to ignore both the units of KMR, a clever derivative, and the
equivalent units of the general partner. We
would calculate book value at $9 per share, 60% less than the Yahoo number.
Thus, Kinder Morgan's accounting has the effect of ingeniously disguising
reality such that value is commonly overstated by widely disseminated securities
research. One might say that Kinder
Morgan's accounting has the effect of gaming the system.
The
general partner's take can hardly be ignored.
It is more onerous than practically the worst government income tax.
The marginal rate is 50%. It
is applied against principal as well as income and there appears to be no means
to use future losses to offset past take payments.
Finally
we remind investors that this scheme was created by Enron and is run by Enron's
former president. Mr. Kinder may
have been pushed out of Enron by the advance of Jeff Skilling.
Yet Mr. Kinder has become a billionaire on Mr. Skilling's "asset
lite" strategy. The way it appears to work in KMP is that retirement
investors contribute the assets and the general partner gets the profit.
Though we refer to retirement investors, the implications are the same for institutional investors. KMR and KMI are related vehicles operated to benefit from the willingness of retirement investors to pay a high price for KMP. |