Yorktown distribution announcements are usually good for a 5-10% near term decline in XTXI---------11/30/04, 3/11, 5/20, and 8/16 were the last ones------they seem to average out to an annoucement every 3 months, so we're due--------in light of the recent weakness in XTEX, it may pay to patiently wait for a better entry point
Yorktown still owns a total of around 3,700,000 shares of XTXI. I suspect that the principals of Yorktown also own a great deal of shares that they elected to hold on their own after they were disbursed.
The last Yorktown disbursements have come in this patter:
So, one would think indeed that we are in for another dumping. I wonder if the announcement of the increasing dividend ($3.00 in 06) makes any difference. I doubt it changes their minds, but at least it might create a bit more demand to soften the blow as they unload the remaining 3.7 million shares.
My wish/hope is that XTXI management pulls off some sort of stock buy-back. Would love to see them buy back maybe 2 million shares. That would allow them to put that cash to work and also leverage up a bit.
Found out on the SEC website that Yorktown did make a distribution on 11/10 of about 727,500 shares. This leaves them with about 3,000,000 shares. Note the slight decline right after the distribution and then the secondary one that started in early December that we are climbing out of now. If the Yorktown distributees are done selling, this could be the start of a nice run up. That is, until the next divs are paid, when I expect they will distribute again and create another buying opportunity for the rest of us.
I am interested in adding to XTXI but am fearful of doing so in advance of a Yorktown announcement of new sales, which I expected to see last week. Maybe we all would be better off if they just announced a timetable for selling/distributing the remaining shares and we knew what to expect from here forward?
You are right, they should buy back some stock. They could lever up w/ debt to do so. It would be a very smart move.
My hope wish, besides a buyback, is that Yorktown dumps the stock down to $40 again. So there.
I thought they were cool on N LIG but very geared up about add-on or follow-on opportunities from El Paso.
No, I know very well XTXI and XTEX and you're actually right that XTEX pays for the expansions. I just forgot that I was not writing about XTEX.
Still, buying back shares is foolish. It does nothing to the valuation and as I said, we pay the taxman twice. Raise the dividends, would be my first choice. Lend the money to XTEX at a lower cost of money would be my second favorite. Buying back stock makes no sense unless you believe that the stock is tremendously undervalued and you have no other options. They have.
I certainly understand what you are saying about not creating value, its kind of exemplified by a company with say 10 shares and net assets of say $100. Maybe they have $90 in equipment and $10 in cash. So the shares trade at around $10/share. So the company goes out and buys back one share, bringing the total assets down to $90, the total number of shares down to 9 and the NAV is still $10/share. However, what if the company were going to experience exponential growth in its earnings, and what if they could buy back say 15%-20%?
I have run the numbers, and if you believe the dividend will ever surpass $6.00 a share, it becomes highly accretive to do a repurchase. If XTXI is going to pay a dividend of $6.00 in the next 2 or 3 years, which I believe will happen, then if they bought back 2 million shares, and lets say they paid $75/share. So they spend $150 million. Lets suppose that they borrowed the whole amount at 7%, that is a grand total of 10.5 million in interest, they save a total of 12 million in dividends, meaning they could pay the interest, and pay down 1.5 million in principal(and they would be paying for this strictly with cash that was meant to be used for dividends on the shares that were repurchased-that is except up front when they first make the purchase, it is not accretive because the growth has not come yet but that period is probably 18 months). Obviously, they could probably borrow at lower than 7%, they probably can't buy the 2 million shares cheaper than $75 but they might be able to buy 1 million shares at $75 . It really just becomes an excercise in excel. My model also takes into account taxes. To simplify the whole thing, it makes sense at the point when the yield on the dividend on the original purchase price exceeds the interest cost. In other words, if they borrow at 7%, and they bought back the stock at $70, then when the dividend exceeds $4.90/share, it is accretive and value adding because they are saving enough on not paying out dividends to pay off the interest and some of the principal.
I encourage you to look at the prospects XTEX has with the North Texas Pipeline (98 million, 17.5 million in cash flow), El Paso acquisition (486 million in cost, 56 million in cash flow), North Texas Expansion planned for early 07(15 million cost, 17.5 million in cash flow). North LIG expansion, 250 million in cost, 40 million in cash flow. South LIG expansion?, numerous other small, yet very low multiple organic growth prospects as well as potential acquistions. If you look at some of my previos posts, you will see that I built a model out that predicts what I think the dividend and distribution will be in 18 months to 2 year.
Besides, I like XTXI being an operations free company. They do own 1 processing plant that is shuttered and they have mentioned in the past that they might re-open it. If they can do it at a multiple like Atlas is doing with their Sweetwater plant, then I say go ahead. If not, then keep raising the dividend, leverage up and buy-back say 2.5 million shares, bringing the total count down close to 10 million.
I understand your model. What it cannot take into account is that the dividends might be growing, but the price may not follow. Two reasons for this: higher interest rates and dimmer prospects. The high multiples we enjoy now are due to historically low interest rates and aggressive acquisitions and growth. You can't tell that they will continue in 2-3 years. Take a look at 3 years back.
I stated my preference: seeing cash used for productive purposes and not financial games of unclear outcome. I'd suggest to the management to keep the cash and invest it like Dan Duncan has done by buying out another GP. (How about your old darling, MWP, for example? How can they run it any worse? :) And if you ran short of ideas, give the cash to us. We can decide to use it to buy more of your shares or another stock with better prospects.
Buying back shares is guaranteed to enrich one class of holder: option holders. That generally includes management and that's why you often see management advocating it.
So, a fair difference of opinions, which may be useful for some readers. My purpose was to give a balancing view on your argument.
I understand your model and understand the uncertainties associated with a buyback.
Yes, I would love to see them buy out MWP. Semple has done an incredible job of screwing up everything he touches.
Mark West Partners. And yes, it very screwed up. They have compted with XTEX on several deals and came out on top only by overpaying. If XTEX bought them out, they would need to do some heavy-duty due diligence to make sure there is no "creative accounting" going on with the numbers.
I would not be too concerned as it indicates it is an "automatic sale" and made every month. Maybe if Davis owned 20 percent of the company, he could live off the dividends, but holding somebody to the Kinder standard is unfair. Nobody measures up.
If you follow the insider buys (and I do) take a look at NRGY. 8 percent yeild and insiders buying in the open market.
"holding somebody to the Kinder standard is unfair" - Yeah, no kidding! ;-)
I have been following NRGP, in addition to XTXI. Both have good managements, a 50 split, and large insider holdings. I'll probably snag some XTXI on the next Yorktown dip. The only thing holding me back from NRGP right now is the fear of rising interest rates - I'm not sure how well that 3% yield is going to hold up.