NTI pretty much operates in PADD 2 out out one refinery in Minneapolis. As mentioned, they had an outage and that always bites into profits. The timing of the outage was not good as margins in the Midwest were at a premium. The big challenge here for NTI is two things. BP whiting has just converted a large crude unit to canadian crude. (About 375 k/day) Conoco Phillips down in St. Louis, ditto. XOM in Joliet as well as Citgo, Lemont run Canadian Crude. Canadian crude just jumped $5/barrel in one day. The Canadians have several outages up there now on their Sands. So, with demand going up, it's easy to see that Canadian crude will now become pricey, which means that canadian refinery users will become less profitable. I could see NTI down to about 14 by the end of August. Wait til about 16 before buying, same holds true for other refiners like ALJ, ALDW, CVI, etc.
Sentiment: Strong Buy
WTI/Brent differential is down under $5 from ~$20, WTI/WCS is down around $12 from over $30. While Brent came down a little bit, most of that is due to NTI's feedstocks moving up. Heating oil is down for the summer, and gasoline is about flat. MLP's pay out what they take in. For a few quarters, NTI was taking in absurd amounts of money due to cheap feedstock, and the dividends were extremely high. They still have a slight (a few dollars) advantage in being closer to the Bakken than Cushing is, but that's about it. So no, the dividends are not "safe" and they were never intended to be.
On the recent weakness...
I am starting to think the market views their interest rate risk - by way of their reliance on debt - less favorable than I do. They are sitting on (A) $275 million private placement of its 7.125% Senior Secured Notes due November 15, 2020 Fixed; and
(B) ABL FACILITY As of March 31, 2013, the borrowing base under the Amended ABL Facility was $237.4 million and availability under the Amended ABL Facility was $200.7 million (which is net of $36.7 million in outstanding letters of credit). The Company had no borrowings under the Amended ABL Facility at March 31, 2013 or December 31, 2012.
INTEREST on the ABL is ( Libor +, or prime - ) and with the small LOC usage and big coverage ratios, I see it as a non factor.
Does anyone see something different as it pertains to the interest rate risk? Or what are your takes on the current to 3 yr out headwinds for this company?
What do you mean not safe? It is a variable distribution MLP and the coming ones are going to be significantly lower (due to both plant turnaround as well as lower crack spread). The last year was a sweet spot for refineries (hence the parent offloading some of their stake). The shrinking spreads reduces the margins significantly.
NTI is located in an area with little competition from the retail side. The Bakken or Canadian crude has 3 ways to go, GOM, East or West Coast by R&R or pipelines. NTI is local and can profit from the transportation cost. In the last month more crude is moving by pipeline than R&R. This means that more pipeline throughput is available at cheaper price, but toward the GOM. R&R is still the only way to access the East and West Coast. The Bakken crude can compete with Brent on the East Coast and West Cost. NTI has not lost its advantage in processing sour crude at a good crack spread. It appears to me that the Bakken production is leveling off; it appears that drilling is leveling off as well. I would not give up on NTI. We are still too far from Xdate.
The BULK of their products are located in the Northern mid west if I'm not mistaken. All I can say is Drive baby Drive.... Their is very little MASS transit like here in the east. I can take the train to work or bus. I can walk to the supermarket. I do have a car, but it's mostly to get away. The Northern Mid west depend on their cars and trucks a lot more and Drive a lot more. In the long run NTI will be OK.
Paraphrase from Warren Buffet:
In the short run, the stock market is a voting machine. but in the long run it is a weighing machine. Put another way: IF you are deciding to buy or sell stocks based on what other people are doing that day, you are guessing if people will like it or not, and if they are being swayed by emotions or not. If, however, you can accurately "weigh" a stock, to determine it's real value, then you determine if the stock is being accurately valued, in the long term. While it is easy to vote, it is hard to weigh. Refiners are especially hard to weigh. The bulk of their profit comes from the "crack spread" The difference between the cost of the oil, and the value of their products. At present the crack is wide. The transportation of crude to the gulf or the East Coast is clogged by too much Baaken and Canadian, not enough pipelines, and trains are expensive. IF the Keystone is built, in two or three years, NTI will make a lot less money. NTI is very sensitive to fears about the pipeline, increasing interest rates, and rumors that the U S Government will change tax rules. all of which are swirling around at present..
NTI had a refinery shutdown in May due to an expansion in capacity. That shutdown may have a short term negative impact on earnings/cash flow/dividend. Not sure but investors may be speculating on that issue.
I'm OK with NTI in the long run.
I'm holding until this minor BS blows over.
Im not sure. The plant shutdown is a little bit old news to be moving the price, with both their last 10k and 10Q having mentioned this, as well as there having been some media attention. I tend to think this security gets a little more volatile going into and coming out of x div dates due to the ~20% div.