I'm new to STON, and find its current yield attractive, if somewhat oversized for its sector. In looking at STON's chart, I note a major drop in addition to or in combination with the historic post distribution drop, commencing circa 3/4 (-$4 from 3/4 to 3/16). In reviewing the financials, I find it a bit disconcerting that the cash flow was negative for both the final Q (-$10.423 MM) of 2010, and the entire year (-$5.944MM). For the full year 2010, it appears as though they borrowed money ($33.688MM) to pay the distribution ($32.443MM). I'm wondering if the concern over the sustainability of the distribution is putting downward pressure on the pps. I noted an upgrade on 3/30, but have not had a chance to dig into the justification. Historically, we are in STON's 30 day run-up to the distribution, and in the past, pps has appreciated significantly in this window (increases of $3.11, $3.50, $2.88, and 1.53 in this window during the last 4 run-ups).
Many posters here have a long history with STON and may be able to shed some additional insight. I have no loyalty to STON; I'm simply looking for actionable information. Your thoughts, both positive and negative, are welcome.
Thanks in advance.
Please don't take my response to mean that I am bullish on Ston. I see some issues.
For at least the past three years, distributions have outpaced operating cash flows (there have been no significant investing cash inflows).
One doesn't have to be a rocket scientist to understand that the monies for the distribution has to come from somewhere.
By adding their accounts recievable and merchandise trust increases to OCF in order to determine DCF, they can justify they have available coverage.
An investor can judge this for themselves as to whether or not they are comfortable with the strategy.
I noted my opinion as to the near term safety of the distribution due to the capacity on the revolving credit line and the availability to raise equity under their shelf filing.
I would watch the next few quarterly reports. See if they can maintain and/ or grow distributions without drawing down on the revolver or by doing another offering. If they can, that is great news. If not, that would give me some cause for concern. At some point in time (probably not for a while), the well will run dry.
Best of luck.
Thanks, Crazy. Well reasoned, logical approach. Don't worry, I didn't take your earlier e-mail as a blanket endorsement; I took it as a specific response to my query regarding coverage of distribution given STON's cash flow statement v. the DCF. You reminded me about the unconventional accounting methods MLP's employ. To that end, I did additional DD and found an interesting article detailing how MLP's derive DCF. Here's the link:
As regards the ongoing cash flow v. DCF, to your point, it bears watching. When (if) the music stops, you want a chair. Thanks again for your thoughtful insight.
If you look at their DCF calculation as provided in the press release, they add back their a/r increase and merchandise trust increase to their operating cash flows (there are also some other adjustments). This add back totaled $28 million for 2010.
With these add backs, DCF covers the distribution. While not totally off base, they are passing on credit risk (a/r) and investment risk (trust) to the unit holders rather than keep it within the partnership.
I listen to their earnings call. Their is always a lot of rambling. For three years, they have been discussing these concepts and stating that eventually a/r will stop increasing and they will be able to make distributions based upon operating cash flows. It hasn't happened yet.
On the upside, they have $65 million on their revolver (the banks keep betting on the come)that they can use to fund distributions. I don't think there is any near term risk to the distribution.
Hope this helps.
Many thanks to Bamajoe, Howard, and Crazy Doctor.
It is apparent that I haven't done deep enough DD. My first stop will be the press release that 2 of you have referenced. This should give me the components of STON's DCF, and allow me to reconcile it with their cash flow statement. If the distribution ( or close to it) is in fact safe, then the current pps softness should firm up as we approach the distribution date (last year, the distribution was declared on 4/26, with the X-d. date of 5/5).
I have been in for some years. I.m ahead and get increasing distributiions. Occasionally someposter babbles that people are always going to die so this is a great business. Not so fast. More and more people are being cremated. 25 years ago Woodlawn cemetary did 2000 burials and 300 cremations. Last year they did 1000 burials and 2000 cremations. A plot costs $6000...cremation, $500. So even if a cemetary is into cremations as well a burials their margins are being squeezed. Now there is a Toronto company called Online funerals and cremations. They figure that as the older generation dies their tech-savvy kids will do their funeral arrangements on line...for less and without high pressure from the funeral parlot. They did 1000 sales last year...will do 1500 this year and figure on 3000 in 2012. Nothin in life or the stock market is black and white. everything is shifting shades of grey. Hope this lets you see a bigger picture
They reported distributable free cash flow for the 4th quarter and full year of 13,569,000, and 37,595,000,both figures larger then the prior year.As a mlp these are non gaap numbers.The accounting of some of these mlp's are sometimes very difficult to comprehend.But this mlp has always paid a generous distribution.Most investors,i think,buy these type mlp's for the distribution and if there are any capitol gains they are just gravy.I consider this company to be somewhat recession resistent,but it has been quite volitile lately.The distributions appear to be covered by the distributable free cash flow reported by the company.