Yahoo Finance “Summit Midstream Partners (SMLP) is More a Bet on The Jockey Than The Horse”: Legacy Ridge Capital Management
Legacy Ridge Capital Management, LLC recently published its “Legacy Ridge Capital Partners Equity Fund I” second quarter 2024 investor letter. A copy of the same can be downloaded here. The fund returned 25.6% gross, and 19.7% net of accrued performance fees through June. The performance has remained decent both in absolute and relative terms, despite being only 70% invested in 9 cyclical companies and not hedging positions, while animal spirits are once again inflamed across markets. For more information on the fund’s best picks in 2024, please check its top five holdings.
Legacy Ridge Capital highlighted stocks like Summit Midstream Partners, LP (NYSE:SMLP), in the second quarter 2024 investor letter. Summit Midstream Partners, LP (NYSE:SMLP) owns, develops, and operates midstream energy infrastructure assets. The one-month return of Summit Midstream Partners, LP (NYSE:SMLP) was 3.74%, and its shares gained 133.93% of their value over the last 52 weeks. On July 25, 2024, Summit Midstream Partners, LP (NYSE:SMLP) stock closed at $36.89 per share with a market capitalization of $392.831 million.
Legacy Ridge Capital stated the following regarding Summit Midstream Partners, LP (NYSE:SMLP) in its Q2 2024 investor letter:
"In addition to Vistra’s performance compelling us to reorder the top of the portfolio, two other positions had news warranting brief updates: Summit Midstream Partners, LP (NYSE:SMLP) continues restructuring the business and balance sheet, and Equitrans Midstream (ETRN) is getting acquired by EQT (EQT).
Summit Midstream is more a bet on the jockey than the horse. This wasn’t the case when I made the initial investment several years ago and I’m guilty of shifting my original investment thesis, as one is prone to do when a stock goes down over 70%. Nine out of ten times this is a big mistake, but our current wager that Heath Deneke and team will straighten this company out is looking like a decent one. Within the past couple months the company divested $700mn worth of assets (the Enterprise Value was only $1.6 billion the day before the announcement), added long-term take-or-pay contracts to the Double E pipeline, and announced a C-corp conversion.
The asset sales occurred in two separate transactions, allowing SMLP to fully exit their position in the Utica and Marcellus basins at a 7.4x multiple. After the asset sale, management embarked on a broader refinancing package, issuing new Senior Secured 2nd Lien Notes due 2029 at 8.625%, while redeeming all other maturities with a little help from the credit facility. With several quarters of FCF capable of paying down the ~$120mn drawn on the revolver, by 2026 the only debt remaining should be $575mn from the new Notes. The chart below illustrates the progress made since Heath joined the company..." (Click here to read the full text)
A large natural gas pipeline snaking through a rural landscape.
Summit Midstream Partners, LP (NYSE:SMLP) is not on our list of 31 Most Popular Stocks Among Hedge Funds. Summit Midstream Partners, LP (NYSE:SMLP) was held by 2 hedge fund portfolios at the end of the first quarter, compared to 2 in the previous quarter, according to our database. The first-quarter financial report from Summit Midstream Partners, LP (NYSE:SMLP) shows a net income of $132.9 million, adjusted EBITDA of $70.1 million, and capital expenditures totaling $16.4 million. While we acknowledge the potential of Summit Midstream Partners, LP (NYSE:SMLP) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
