Magnetar Capital starts new positions in 3Q 2013

Part 2
Magnetar Capital starts new positions in 3Q 2013 (Part 2 of 6)

Magnetar Capital starts new positions in DNR, OKE, LAMR, and KMI and sells PFE and ZTS—13F Flash B

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Magnetar Capital was founded in 2005 by Alec Litowitz and Ross Laser. It’s based in Evanston, Illinois. It seeks to deliver consistent long-term risk-adjusted returns by investing in and across alternative asset classes. It seeks opportunities where it can engineer and scale its processes, and it structures investments to be profitable across the broadest range of market conditions or outcomes. It operates in and across three major investment strategies: global event-driven, fixed income, and energy.

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

In this six-part series, we’ll go through some of the main positions Magnetar traded this past quarter.

Magnetar started new positions in Denbury Resources Inc. (DNR), Oneok Inc. (OKE), Lamar Advertising Co. (LAMR), and Kinder Morgan Inc. (KMI) and it sold Pfizer Inc. (PFE) and Zoetis Inc. (ZTS).

Why buy ONEOK Inc. (OKE)?

ONEOK reported earnings of $0.35 per share, above analyst estimates. On a year-over-year basis, earnings increased, driven by continued volume growth in its MLP subsidiary ONEOK Partners with volume increases in natural gas and natural gas liquids as a result of completed growth projects. ONEOK’s third-quarter 2013 operating income was $230.1 million, compared to $242.9 million for the third quarter 2012. The operating income reflected charges related to contract termination costs associated with the capacity releases executed in 2013 for certain transportation and storage contracts.

ONEOK updated its 2013 net income guidance range to between $245 million and $275 million, compared with the previous guidance range of $235 million to $285 million, reflecting lower-than-anticipated non-cash charges associated with the accelerated winding down of the energy services segment and lower anticipated earnings in ONEOK Partners’ natural gas liquids business due to narrower natural gas liquids (NGL) location price differentials.  NGL exchange-services margins continued to increase in the third quarter 2013, while NGL optimization margins decreased as a result of narrower NGL location price differentials and ONEOK Partners’ strategy to convert NGL optimization capacity to fee-based exchange-services capacity.

In July, the company had announced plans to separate its natural gas distribution business into a separate publicly traded company, ONE Gas, Inc. ONE Gas will be one of the largest natural gas utilities in the United States, serving more than 2 million customers in three states, and it will be the only publicly traded 100% regulated pure-play natural gas distribution utility in the United States. The separation is expected to be completed in the first quarter of 2014.

In August, the company completed a public offering of 11.5 million common units, which generated proceeds of $553 million. In September, it completed a $1.25 billion public offering of senior notes, generating net proceeds of approximately $1.24 billion. The proceeds from these two offerings provide significant capacity for its capital expenditures program.

ONEOK recently announced a higher guidance for 2014. It said its 2014 net income is expected to increase 27% compared to the partnership’s current 2013 earnings guidance, which was updated on November 5, 2013. Continued volume growth in its natural gas gathering and processing and natural gas liquids segments from completed capital growth projects in 2013 and projects that will be completed in 2014 are driving its higher 2014 earnings guidance. Projected distribution and earnings growth are expected to be driven primarily by natural gas and natural gas liquids volume growth, not by higher projected commodity prices or wider projected price differentials. The announcement led to an increase in its share price. The stock is up 33% year-to-date.

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Magnetar Capital founder and CEO Alec Litowitz and co-founder and president Ross Laser were joined by David Snyderman in 2005, shortly after launching the firm. Prior to founding Magnetar, Litowitz was a principal at Citadel Investment Group, where, during his nine-year tenure, he served as global head of equities and was a member of the management and investment committees. Prior to co-founding Magnetar, Laser was the president and managing partner at Glenwood Capital Investments, where he was a member of the Investment Committee and co-head of the Management Committee. Prior to joining Magnetar, Snyderman spent nearly seven years with Citadel Investment Group, most recently as a senior managing director and head of global credit.

A “magnetar” is a neutron star with an extremely powerful magnetic field. It releases a steady beacon signal and produces bursts of energy, resulting in the brightest objects observed in the universe. When the firm was launched in 2005, the founders selected the name because it represented what they sought to build at Magnetar Capital: a firm that attracts and retains world-class professionals, targets consistent long-term risk-adjusted returns, and fosters an environment that brings energy and passion to investing and building businesses.

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