Today we have a speculative idea: take shares in Williams' pipeline business (NYSE: WMB), in order to make money on gas demand.
Growth potential and validity: 18% behind 18 months excluding dividends; 7% per year for 15 years including dividends.
Why stocks can go up: in dividends will run fans of that, to make money work.
How do we act: we take shares now by 31,83 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
WMB is a network of pipelines and terminals for the transportation of energy resources, mainly gas.
According to the company's annual report, its revenue is divided as follows:
- Services - 56,46%. Everything, what is related to the core business of the company: Transportation, Storage.
- Services with raw materials — 2,28%. Payment for the company's services "in kind" - in the form of gas processing products.
- Sales — 42,68%. Resale of someone else's gas, but using the transport infrastructure of Williams itself.
It turns out to be a little more 100%, because the company is still engaged in derivatives based on raw materials - and operations with these instruments bring it losses, as a result of which it turns out to be exactly 100%.
From an infrastructure point of view, WMB is two companies, one of which covers the Northwest usa, and the other the eastern coastal states.
Revenue of the company by types of clients:
- Housing and communal services and energy generation — 66%.
- LNG and industry — 9%.
- Gas producers — 8%.
- Companies, trading in energy resources, — 12%.
- Others — 4%.
The company operates only in the USA.
Arguments in favor of the company
The main arguments in favor of the company are similar to the arguments in favor of its competitors-colleagues from Kinder Morgan.
SPG. Well-known events in Europe have led to an increase in gas prices and created a serious motivation for increasing LNG exports from the United States to other countries.. WMB facilities in the U.S. East are well suited for LNG companies, so I would expect a lot of demand for her services.
Reliability. Through the company passes approximately 30% American Gas, which makes it almost indispensable, and its business is very stable.. This should help to catch up with a lot of investors in its shares., who want to have at least some confidence.
Dividends. Like the Kinder, WMB offers investors good passive income: 1,7 $ per share per year, what gives 5,29% per annum. This should attract the shares of the company of those, who really wants to, to "make the money work".
Raising the stakes FED and the expected increase in deposit rates in the US will not greatly spoil the prospects for dividend stocks. Banks in the US are full of money, with whom they have nothing much to do. So interest on deposits in the US, which are now below the plinth, should not grow much. And this will force many to look for dividend stocks – like WMB., "to pay a lot, and it was reliable".
ESG. The company boasts of its achievements in the field of ESG: here it is and the amount of methane emissions has been reduced from 2012 to 58%, and 29% of the directors on its board are neither white nor male, and she has fewer accidents since 2017 80%.
She also has medals., confirming her incredible ESG merits: S&P gave her the first place in her industry subgroup, Sustainalytics also gave it a high rating – 18th place out of 198 among similar companies.. Climate appraiser CDP gave it a rating of B, it's above, than B− in its sector, and higher, than C across North America on average.
Given the growing power of the ESG lobby, this can have a positive impact on both the company's quotes, and on the availability of loans, which to her, Unfortunately, very much needed.
What can get in the way
Accounting. The company's debts exceed 31 billion, of which 4.972 billion must be repaid within a year. WMB doesn't have much money at its disposal: 1,68 billion in accounts and 1.986 billion in counterparty debts. Think, in combination with rising loans, this forms a factor, which can scare off some investors from these shares.
More needs to be considered, that the company pays dividends more, what does he make. Yes, essentially, she has the money: high costs remain "paper" - this is depreciation and wear of equipment. In reality, WMB pays shareholders only from profits, not getting into debt purely for the sake of dividends. But, in fact, it still has to invest in upgrading its capacities., and it's expensive. It may turn out like this, that it will cut dividends, to implement its large-scale investment program.
And if the payments are cut, then stocks will plummet — for much of their appeal will disappear.. So the losses on wear and amortization are not paper - they are quite real., just delayed: the time to upgrade and repair capacities has not yet come, but it's coming— and it's all going to cost WMB a pretty penny..
What's the bottom line?
Shares can be taken now by 31,83 $. And then there are two options.:
- wait for the growth of quotations to 38 $. I believe, that the hysteria around energy and LNG prices, combined with other factors, may well pump up quotes to this level.. Here we should count on approximately 18 Months;
- keep shares next 15 years and receive dividends, That, I dare to hope, will increase.
Considering the dividend factor in the idea, do not forget to look at the news section on the company's website, in order to have time to sell shares on the St. Petersburg Exchange before, how the U.S. market will react. However, now we do not have a temporary advantage: "SPb-Birzha" now opens late. Hope, that's about to change..
