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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (52756)11/9/2013 12:36:48 PM
From: Spekulatius1 Recommendation

Recommended By
E_K_S

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The warrants are to cheap, if you believe that KMI will reach their ~12% growth targets. If they do, their dividend should be ~2.5$/share in 2017. If you put a 5% yield on this (less than the current 4.6%) then KMI would be worth ~50$ and the warrants intrinsic value would be 10$. If the yield in 2017 stays at the current value (which i consider cheap), the shares will be ~55$ and the warrants will be worth 15$.

If KMI collapses (unlikely), or stays below 40$ you are out 4$ for the value if you warrants. I give this scenario a 30% chance. Those odds look OK to me. Also, you have got the chance of a positive tail event (bubble valuation for KMI). I think this odds look OK. I think the fact that management buys these warrants means that they believe their own forecast.

FWIW, I own more shares than warrants right now.
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