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TransMontaigne, Inc. (TMG) Message Board

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  • rrb1981 rrb1981 Feb 11, 2005 7:17 PM Flag

    Multiple expansion


    Valero is trading with a multipe of over 19x distribution.

    Look at Hiland [HLND] (an MLP that went public on Thursday and popped 29%). The demand for MLP's remains very strong and TMG has a very attractive set of integrated terminals that provide solid, steady cashflow.

    If we assume that the distributable cash, which is essentially the cash that they can take out of the busines after maintenance capex is around $40 million and we put a multiple of 18x(which is less than what Valero is getting but then Valero has a history of performance)on that, then in theory, if they were to create the MLP with an intial distribution of $2.00, then they would have a total of 20 million units of the MLP. They are going to raise around 130 million from the crude oil "linefill" sales and if they IPO say 5.5 million units of the MLP, then they could raise another $200 million, which assuming the $330 million debt number is correct(and I think it is lower than that), that would give them enough cash to pay it completely off. That would leave TMG GP holding 14.5 million units(units=shares) of the MLP trading at $36.00 each(18x the $2.00 distribution). Thats a total of $520 million in hldings. Then throw in the fact that by paying off the debt, they free up the interest(which, essentially is then going to pay the distributions on the units sold in the IPO, which amounts to a zero gain/loss for TMG). TMG GP also has a few other holdings of assets that cannot be put into an MLP as well as the GP and collectively they are probably worth $1.00. So, when we crunch the numbers, it looks like we would have $520 million in value divided over 41 million TMG GP shares, which amounts to $12.70/share for TMG GP and then add the $1.00 worth of non-MLP assets for a total of almost $14.00. It would also mean that TMG was receiving 29 million from the 14.5 million TMG MLP units that it still retained. That cash could then be used to pay out an ordinary dividend at the GP level. So, my guess would be a dividend of .30(after tax and assuming they retain some).

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