ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Artificial Intelligence
      • Beyond Basic Beta
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Direct Indexing
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Investing
      • ETF Education
      • ETF Strategist
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Institutional Income Strategies
      • Leveraged & Inverse
      • Managed Futures
      • Market Insights
      • Modern Alpha
      • Multifactor
      • Responsible Investing
      • Retirement Income
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Commodities
        • Gold/Silver/Critical Minerals
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Index Insights
  2. When Is a Utility Not a Utility? A Review of the Recent Sempra Analyst Day
Index Insights
Share

When Is a Utility Not a Utility? A Review of the Recent Sempra Analyst Day

Maria HalmoMay 20, 2015
2015-05-20

We weren’t able to attend the Sempra Energy (SRE) Analyst Day (slides available here), and so instead we were left eagerly anticipating the announcement of an MLP or YieldCo from our Dallas offices. While no S-1 was filed, SRE did announce that from 2015 to 2019, it is expecting an EPS CAGR of 11%. I’m not a Utility analyst, but even I know that an 11% CAGR is really high for a business that supposedly depends on rate cases. SRE is able to project double-digit annualized growth because of its US Gas & Power (USG&P) segment, which houses the company’s midstream energy infrastructure assets. That’s a business with which I am familiar.

This is the image alt text

The major source of projected earnings growth in USG&P will be from Cameron LNG Trains 1-3, which will come online by the end of 2018 and contribute $300-$350 million in 2019. While they won’t contribute to earnings growth, the cash flow from the original west-to-east REX contracts will not have finished rolling off until their expiration dates in 2019, thereby guaranteeing a baseline of cash flows for the pipeline. East-to-west contracts are still being inked.


Content continues below advertisement

This is the image alt text

It wasn’t until last year’s analyst day that management spoke about exploring the use of an MLP. This year, management was clear which assets (Cameron LNG, midstream, and renewables) they expect to place into the Total Return Vehicle (TRV). Notably, they are discussing a TRV and not necessarily an MLP, because they want the option to include their renewable power generation assets. If SRE does use the MLP structure for the TRV, the renewables will be housed in a corporate subsidiary that pays dividends to the publicly traded TRV. (For years, MLPs have done this with assets that generate non-qualifying income, such as gas stations and convenience stores.)

This is the image alt text

While there are many diversified MLPs, having renewable alongside midstream assets will be a first for the structure. The management team at SRE believes that investors assign premium valuations to quality, which they define as having the following characteristics (as listed on slide 18):

•     Stable cash flow profile through long-term contracts
•     Solid long-term distribution growth
•     Large pipeline of identifiable dropdowns
•     Long-term tax efficiency
•     Proven management team

This is the same argument that marine transportation MLPs and YieldCos have been making to investors for years.

It’s also not SRE’s first time having a publicly traded subsidiary. IENova went public in 2013 as the first and only energy company trading on the Mexican Stock Exchange, a distinction it still holds. Given that the entirety of Mexico’s energy industry was state-owned until President Enrique Peña Nieto’s energy reforms in 2013 and 2014, IENova has an impressive suite of assets and is currently bidding on an additional $11 billion worth of projects.

This is the image alt text

This is the image alt text

As Mexico continues to privatize its energy industry, other energy infrastructure companies have announced plans to extend their reach south of the border. NuStar Energy (NS) is building liquefied petroleum gases and refined fuels pipelines in partnership with Petróleos Mexicanos (known colloquially as Pemex). TransCanada (TSX: TRP) already has a few natural gas pipelines in Mexico and more are under construction. Energy Transfer Partners (ETP) announced the construction of new natural gas pipelines in Mexico in 2014. Kinder Morgan’s (KMI) natural gas pipeline system goes right to the border at many points, and even extends into Mexico on a limited basis. As these companies begin to expand their footprints, they’ll run into SRE (via IENova), which is already exceptionally well positioned.

So, when is a Utility not another boring, old Utility? When it has the assets, growth plan, monopolistic footprint, and mindset of an energy infrastructure company.


» Popular Pages

  • Tickers
  • Articles

Sep 29

A Fixed Income Primer for Constructing Portfolios

Sep 29

Main Management Market Note: September 29, 2023

Sep 29

Higher for Much Longer?

Sep 29

Moving Averages: S&P Ends September Down 4.9%

Sep 29

This Week in ETFs: FormulaFolios Renamed & Adds New Funds

Sep 29

Play Online Car Sales News in These 2 China ETFs

Sep 29

SEC Opens Ethereum Futures ETF Floodgates

Sep 29

VettaFi Voices On: Managing Risk in an Uncertain Economy

Sep 29

SPYI Outperforms SPY in Challenging 3rd Quarter

Sep 29

More Rate Hikes? Watch Treasury ETF USFR

QQQ

Invesco QQQ Trust Series I

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

TSLY

YieldMax TSLA Option Income...

VTI

Vanguard Total Stock Market...

TLT

iShares 20+ Year Treasury...

SMH

VanEck Semiconductor ETF

JEPI

JPMorgan Equity Premium...

SCHD

Schwab US Dividend Equity ETF...

XLE

Energy Select Sector SPDR...

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X