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StoneMor Partners L.P. Message Board

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  • marklibera marklibera Dec 1, 2009 1:13 PM Flag


    It sounds like there are many on this board who know more about the specifics of this company and finance than me. Probably like you, I was attracted to this a few years ago by the high-yield and the idea of a niche business, with constant business and a roll-up type strategy. Last year's bear market taught me that illiquid stocks with high-yields that get weighed down by debt covenants can result in dividend eliminations and stock price destruction. In other words, the risks are high if the cashflow can't support the distribution.

    One can speculate as to whether their business will hold up or whether the recession will impact spending decisions on funerals and burials. One thing that strikes me when you compare this to other MLPs, especially the pipeline and energy sectors, is that the goal of the MLP model is to pay out most of the cashflow and grow through acquisitions by issuing more and more debt and equity. This works well AS LONG as the debt and equity is not mispriced so that the equity doesn't get overly diluted and the debt isn't too expensive. Others have spoken about the interest on the recently issued debt. From looking at their filings, it doesn't look like their margins are large enough to support that kind of debt. I also didn't like the hit in to their trusts from their equity portfolio. We've had a 50% rally in stocks and the equity component of their trusts is still showing losses -- what happens if stocks decline again?

    So I had a number of questions about holding on to this and I think I've come to the conclusion that the business is too opaque and there are too many other issues to warrant holding. It's hard to give up the yield especially when yield is hard to find, but if I learned anything, it is don't be a yield hog. It's not really worth the extra 1 or 2% to take on more risk.

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    • Great post. I certainly would not assume to know more than you!
      I know some folks on this board have moral issues with the price of these services. Still folks should remember a strikingly large percentage of the population cannot take care of these things at Costco on their own. Without the profit these services which are needed would simply not be available.
      In reading your post FRP sprang to mind. It looked like despite all the problems they still have solid cash flow. But in the end it was the debt covenants which drove them into bankruptcy. Unlike real estate where there is not a market, there are real cash flows to be taken over. So FRP blinked out of existence as far as common owners were concerned. Regulators that had their arms twisted in the first place seem to take some joy in wiping out the existing owners with no public comment.
      Something individuals should certainly contemplate with STON. Paying 11% on dept is a big red flag and not paying distributions is not the worst thing that can happen.
      The trust accounts are a definite concern due not to the performance but the still unacceptable level of disclosure. Given the relative performance I think their claim to be loaded up on the MLPs was borne out. A real bright spot in the market and every reason to believe cng is the energy of the American future. So I am still in the camp that the future cash flows are secure and dependable. But do I have enough information to share anything but a feeling rather than informed opinion? No.
      I have held a few units for years now. Hoping management would improve reporting and disclosure. Unfortunately they have made it much worse. The cost of the debt along with the unknown convents is certainly too much for me.
      It was very interesting that WIN took out IWA at a significant premium. As it was EPD buying back in TPP at a slight premium. High dividend signals risk but sometimes also real market inefficiency.
      I will keep watching. I do not think STON is well understood and probably not efficiently priced. But, as you say, it could be wildly low or wildly high. That is betting rather than investing. As we are investors time is better spent where it can make a contribution. At best this management is playing in areas they clearly do not understand and that is reason enough by itself to just watch.
      Good Fortune on your investment! Great post thank you.

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