Hmmm, looks like XTXI investors are sheep being herded by the analysts rather than formualting their own opinions. I listened to the call and came away with mixed news, but the dividend projections they gave were still very good. The $2.40 to $2.65 number is the paid, not the annualized run rate. Same thing with XTEX. I think that is a misunderstanding by many. Surprised to see two days of being down $1.00 and then a $3.00 drop leading me to think that most are following analyst projections rather than thinking for themselves. I would have expected the opposite. Down $3.00 on day 1, followed by 2 $1.00 down days. Oh well, the market isn't efficient.
Notice Morgan Stanley is looking to buy XTXI (corr10001 pointed that out). Looks like MS would use the operations as a group of assets to trade around (storage. pipelines and barges would allow them to make bets on forward pricing, as well as let them take advantage of differential pricing.
ex_delhi, thank you very much for the clarifications. Very glad, as it puts some of my concerns to rest.
My comment was related to my (false) impression that they had a bunch of relatives at the top, yet they were amazingly well managed. So, the exception that breaks the rule. Yes, they are very well managed, but as you indicated, they are not relatives at all. Again, thank you.
1) None of the five Davis' who work at XTXI are related. Just a coincidence.
2) As for the top two selling, These are 10-5(b)(1) sales and are extremely minor. At the rate Mr. Davis, the President, is selling, it would take over 8 years for him to sell out assuming he received no more restricted units or stock which is highly unlikely. Not a concern. As the company grows, the top executives just pile it on themselves so it's like a bathtub with the water running and the drain open. The water level slowly goes down but never seems to go empty.
3) Can you clarify your comment "and it is the exception that breaks the rules"?
Thanks a lot follower. Even though I'm not a complete newbie to things, I imagine some others reading might do well with the basic breakdown.
I suppose some of the GP's that started as corporations and not partnerships were envisioning being more appealing to institutions or some other types of investors. (?) Just a guess. The MLP people always seem to talk up the avoidance of double taxation, so why make the GP a corporation?
As you know, most public U.S. corporations are required to pay taxes, generally at a rate of 35% of net income (many new IPOs are located outside the U.S. to avoid this problem, at a huge loss to the U.S.).
Partnerships, however, pay no tax. All tax is payable by the individual partners. What this means is that the GPs structured as partnerships -- NRGP, ETE, EPE, and MGG -- pay no tax. In addition, none of the underlying MLPs pays entity level tax. What this means is that these partnership GP entities are very efficient users and processors of capital, assuming that they maintain reasonable SG&A ratios, as most do.
XTXI, KMI and MWP are corporations that are required to pay 35% tax. KMI has been writing pretty big checks to Uncle Sam, while XTXI and MWP have not done so because of various deferrals. However, someday they likely will start paying cash taxes too, perhaps not 35%, but some amount approaching that much. These corporations have a benefit, however, in that dividends are taxed at no more than 15% to us so, all things being equal, we might rather own the corporations. The problem is that all things are not equal, so we prefer to hold the partnerships to minimize entity level tax.
At the end of the day, GPs structured as partnerships, again all other things being equal, are able to pay a greater percentage of their discretionary cash flow to their unitholders in distributions as compared to corporations, which must hold back some additional cash to pay Uncle Sam.
The Citi risk analysis is very confusing. MGG does nothing more than collect incentive distribution payments from MMP. MGG has no hard assets, owns no MMP units, and has no debt or cash.
Citi gives MMP a rating of Buy/Low Risk. Therefore, there is basic agreement that MMP's operations are very low risk.
If MMP is Low Risk, why is MGG Speculative? Citi explains in its report that the difference is attributable to (1) leverage and (2) possible GP sale of MGG units.
As to (1), all GPs have leverage, and Yes, it is a risk factor, but I don't think leveraging a Low Risk MLP morphs into a High Risk venture.
As to (2), GP sales of its own units is a short term issue, as we have seen with XTXI. But, notwithstanding the periodic concern of short term dislocation to XTXI from Yorktown sales, take a look at the long term chart: doesn't look too bad, does it? Therefore, the fundamentals of the business are more important than some possible hedge fund distributions.
Bottom line is that MGG probably is the least risky public GP.
Thanks a lot follower. Good stuff right there.
Funny you should call MGG the safest. Was just reading the Citigroup report that gave it a "Speculative" rating. This could be my first time owning something Citi calls speculative, although I've had a lot of money in payday lenders too. If Citi covered those, I'm pretty sure they wouldn't be low risk rated.
Haven't studied GP's in detail so I'm not sure why some would pay taxes and others wouldn't. Also not sure why ETE would have debt. I try to stay away from propane so I haven't looked into NRGP much. I'll give it a look if it's a "star" in your book. I'm not even sure I like the fact that I have a little MWE, so I'm staying away from MWP.
At any rate I do appreciate the GP analysis. Very good stuff...
Two concerns with the Davis':
(1) there are 4 of them (siblings) now and who knows how many more if you count spouses and more distant relatives, such as nephews etc.
(2) the top two Davis' are consistent (and big) sellers. I know that selling by the executive team has to be done, but it is a concern, when you see the company growing so rapidly. What the heck?
That's all. I am an investor and I have a large investment with them for a long time, so obviously I am very happy. This has become my second largest holding and competing for #1 spot (as it grows in valuation).
Despite all my concerns, they are managing extremely well and it is the exception that breaks the rules. I would rather they were not so "exceptional".