Genesis Energy LP (NYSE:GEL) leverages its diversified energy business model to generate attractive shareholder remuneration, with Bloomberg consensus estimates implying an FY19e dividend yield of 7.2%, towards the top end of utilities globally. The company has a strong track record on delivering attractive remuneration to shareholders and on generating enough cash flow to cover dividend payments.
Diversified/integrated energy business model
Genesis Energy’s strategic focus is to leverage its diverse power-generation asset mix to provide flexible services to a market characterised by a very high share of renewables (>80%), and to leverage its integrated fuel position to minimise costs for the company and its customers. Genesis is preparing for the energy transition, consistent with the government’s environmental policy of zero emissions by 2050. The key catalyst will be the strategic update at the Investor Day on 7 November.
Key focus is on attractive shareholder remuneration
Genesis Energy’s key focus is on maintaining an attractive dividend yield plus delivering growth, with a view of generating top-quartile total shareholder returns. Over the period FY14-18, the dividend yield averaged 7.5% and EBITDA grew 4% pa. Bloomberg consensus implies 7.2% FY19e dividend yield. Historically, Genesis’ cash flow generation has justified the high dividend payment – over the period FY15–18, the average payout ratio was 90% (calculated as a percentage of free cash flow, while the figure calculated on net income is significantly higher, at >200%). The current share price implies a 2019e EV/EBITDA of c 10x and a high P/E (38x) as earnings are depressed by high depreciation, depletion and amortisation (DD&A) – in FY18, DD&A was c 4x the ‘stay in business’ capex).
To read the entire report Please click on the pdf File Below..