Antero Midstream Makes A $70 Million Bolt-On Acquisition (NYSE:AM)

Antero Midstream (NYSE:AM) introduced a couple of transactions the week following its Q1 2024 earnings report. It made a $70 million bolt-on Marcellus acquisition that resulted in it rising its 2024 free money circulate steerage by $10 million. Antero Midstream additionally redeemed its Could 2026 notes, pushing its subsequent observe maturity to March 2027. The monetary affect of the observe redemption is fairly minimal.

I’ve elevated my estimate of Antero Midstream’s worth barely (by two %) to $14.60 per share. This displays the affect of the bolt-on acquisition on Antero Midstream’s free money circulate, in addition to Q1 2024 outcomes that have been on the optimistic facet.

Bolt-On Acquisition

Antero Midstream introduced a $70 million money bolt-on acquisition of the Mountaineer Midstream System from Summit Midstream Companions (SMLP). The acquired property embrace 48 miles of excessive strain fuel gathering pipelines and two compressor stations within the Marcellus. Antero Midstream talked about that these property are already linked to its low strain fuel gathering system and won’t require significant capex.

The Mountaineer Midstream System has a long-term, fee-based contract with Antero Assets that features minimal income commitments. Summit Midstream Companions talked about that it obtained $6.6 million in shortfall funds in 2023 and one other $1.7 million in shortfall funds in Q1 2024 associated to the Mountaineer Midstream System.

Summit Midstream Companions additionally famous that there are contractual expirations in 2025 and 2026. It’s unsure what affect these contractual expirations could have, though Antero Midstream talked about the deal ought to improve its free money circulate after dividends by 5+% by way of 2027. By way of the affect on free money circulate earlier than dividends, that’s doubtless round 2% or so.

Antero Midstream elevated its full-year adjusted EBITDA steerage by $15 million because of this acquisition, whereas Summit Midstream Companions decreased its full-year adjusted EBITDA steerage by $15 million to $20 million as a result of divestiture. Summit’s adjustment was proforma for the transaction closing on the finish of 2023.

Thus, the acquisition may add round $18 million (over a full-year) to Antero Midstream’s adjusted EBITDA for now (based mostly on the midpoint of Summit’s numbers), however when the contractual shortfall funds finish, this is able to be decreased to round $11 million per yr if volumes are roughly steady.

Antero Midstream’s credit score facility has an roughly 7% rate of interest, so it’s paying one other $5 million per yr in curiosity prices initially, however this will likely be decreased by debt paydown.

The $70 million money worth appears fairly cheap for Antero Midstream, and it in all probability advantages from the Mountaineer Midstream System being the final remaining asset that Summit Midstream owned within the Northeast after its Utica divestiture.

Word Redemption

Originally of Could 2024, Antero Midstream introduced the redemption of its $531 million in excellent 7.875% unsecured notes due Could 2026. The redemption worth was 101.969% of par, plus accrued and unpaid curiosity.

Antero Midstream had $26 million in money readily available on the finish of Q1 2023 and in addition spent $70 million on its Marcellus bolt-on acquisition at the start of Could, so the redemption is usually funded by credit score facility borrowings.

Antero Midstream might save just a few million per yr on curiosity prices though the redemption premium principally offsets this.

Antero Midstream’s subsequent debt maturity is its 5.75% unsecured notes due March 2027. The decrease rate of interest on these notes will doubtless make Antero wait longer to redeem them although.

Antero Midstream’s credit score facility at the moment matures in October 2026, so it is going to look to increase that. The credit score facility had a springing maturity to November 2025 if any of Antero Midstream’s 2026 notes have been excellent then, in order that was a think about Antero Midstream redeeming these notes.

Q1 Outcomes And Steering

Antero Midstream’s Q1 2024 outcomes have been fairly strong. It reported a 4% improve in gathering volumes and a 6% improve in processing volumes in comparison with Q1 2023.

This resulted in $265 million in adjusted EBITDA for the quarter. Since Antero Midstream solely had $30 million in capex in Q1 2024, it noticed its free money circulate after dividends improve to $74 million. Antero Midstream additionally talked about that it positioned into service the Grays Peak compressor station, which used compressor items relocated from areas with overcapacity. This re-use of compressor items saved it round $15 million in capex.

Antero Midstream’s full-year steerage remained unchanged after its Q1 2024 outcomes, though I imagine it was trending in direction of the higher finish of its steerage vary at no cost money circulate.

Antero Midstream then elevated its 2024 adjusted EBITDA steerage by $15 million because of its bolt-on acquisition, whereas its 2024 curiosity expense steerage elevated by $5 million as a result of $70 million money buy worth for that acquisition. This resulted in a $10 million projected enchancment to Antero Midstream’s free money circulate for 2024. Antero Midstream has not reported any share repurchases in 2024 but.

Notes On Valuation

I beforehand estimated Antero Midstream’s worth at $14.35 per share. After its Q1 2024 earnings report and its newest transactions, I would improve its estimated worth to $14.60 per share.

Antero Midstream’s Q1 2024 earnings report was largely in-line with expectations (barely optimistic total), whereas its bolt-on Marcellus acquisition additionally provides a little bit of worth.

That acquisition is anticipated so as to add a few cents per share to Antero Midstream’s 2024 free money circulate with a partial yr’s contributions. It might add round three cents per share to Antero Midstream’s free money circulate in 2025. This may occasionally diminish because the minimal income commitments expire, however based mostly on Antero Midstream’s feedback, the extra free money circulate (after curiosity prices) might add as much as round 10 cents per share between 2024 and 2027.

Conclusion

Antero Midstream reported Q1 2024 outcomes that have been on the optimistic facet. Whereas there have been no main surprises there, Antero Midstream seemed to be trending in direction of the higher half of its full-year steerage vary at no cost money circulate.

Antero Midstream then made a $70 million Marcellus bolt-on acquisition that ought to increase its free money circulate by a pair % for at the very least the following few years. I feel Antero Midstream obtained a reasonably good take care of this acquisition as Summit Midstream Companions was divesting its Northeast property and this was a comparatively minor remaining property.

I now estimate Antero Midstream’s worth at $14.60 per share, which is near its present share worth.