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Calumet Specialty Products Partners LP Message Board

  • mike2915 mike2915 Jun 7, 2013 12:27 PM Flag

    Seeking Alpha

    I just read the Seeking Alpha report on CLMT. Here is a little taste!

    Disclosure: I am long CLMT. (More...)

    Warren Buffett has said many times his favorite holding period is "Forever". I am by nature more of a trader and see very few of the current stocks in my portfolio being there 1-3 years from now - Hopefully as they hit my price targets or get bought out by larger players. One exception to this expectation is Calumet Specialty Products Partners (CLMT). This unique refinery Master Limited Partnership has been a core part of my income portfolio for over a year. I have had the shares since I wrote the first article on it at $24.50 a share. CLMT now is at $34 a share and still yields 8%. Unless the entity is bought out, I don't see it leaving my portfolio until someone pries it out of my cold, dead hands.

    I have done cursory coverage on this company in the past, usually as part of a list of good income plays. Today, I want to take a deeper dive on this stellar income & growth play. I want to do this for two reasons. First, I think it is an overlooked income selection and investors mistake it sometimes for a risky commodity play presenting an opportunity for more knowledgeable shareholders. Second, it gets so little in depth coverage in the media.

    Company Overview:

    Calumet is a leading specialty hydrocarbon producer with refining assets located across the United States. It is organized as a master limited partnership and specializes in the refining of crude oil and other petroleum feedstocks into a myriad of high quality downstream products (See appendix at end of article for a list of products). The company is well run and has had most of the same management team in place since the late 90's. The families of the CEO & Chairman own ~25% of the shares. Management has done a stellar job in expanding the company's capacity since the company came public early in 2006 (See timeline chart below)

    (click to enlarge)

    Calumet now has a significant footprint in the energy producing regions of the United States (See below). The company recently added a 14,500 barrel per day refinery in San Antonio for a bargain price ($116mm). Calumet also entered into joint venture to build a 20,000 barrel per day diesel refinery in North Dakota to serve the expanding demand in the Bakken for this sort of fuel.

    (click to enlarge)

    Financial Strength:

    One of the ways Calumet's management strength manifests itself is how prudently it manages the company's financials. This can be demonstrated on how consistent the company's key financial ratios (See below) have been despite the substantial growth of the company since 2006. This conservative management continues to give Calumet the financial flexibility to act on strategic growth opportunities. It is one of the biggest reasons I own the shares.

    (click to enlarge)

    Distribution Growth:

    This financial management has also been key to growing the increasing distribution payouts shareholders receive. Not only has CLMT more than doubled since 2009 but the company has raised its distribution payouts for 11 straight quarters (See Chart). With the recent acquisition of the San Antonio refinery, the build out of the new facility in North Dakota (Completion projected by yearend 2014) and other expansion opportunities on the drawing board; I see both capital appreciation and distribution growth continuing into the future.

    (click to enlarge)

    Calumet has been able to enable this distribution growth by the consistent way they have increased production and optimized their product mix over the past five years (See Chart).

    (click to enlarge)

    Risk Management:

    Another key to maintaining this distribution growth is the company's solid risk management practices. Calumet is focused on consistently growing cash flow, not on quarter to quarter earnings. The company hedges away most of the "crack spread" risk and has other risk management policies in place as well (see below). This is where a lot of the opportunity lies in CLMT, as most investors incorrectly believe the company will be impacted significantly by rising or declining crack spreads. It is the core reason why Calumet sells at less than 11x trailing earnings despite yielding 8%. The company has grown operating cash flow by more than 150% since the end of FY2010 despite deploying significant investment in new capacity.

    Sentiment: Strong Buy

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    • Good Homework on CLMT. Buffet rule a company with good management, and that means top decisions made to build bottom line growth. I doubled down on CLMT recently on this downturn, and bought originally for their solid management, and diversity of petroleum consumer product line over other refinery's. Considering the Phillips 66 MLP IPO coming up later this year (PSXP). Trust advisor frowns on holding any equity above 5% of total portfolio, I got room for more CLMT, but loaded heavy in oil & energy sector overall and added two more refinery's with this pullback. I am trying to own a piece in every area of Energy sector.... Upstream, mid-stream pipelines, down stream storage, through refinery's, transportation including offshore rig transport to onshore refinery. Hold two MLP funds to cover the entire sector, along with the single MLP's. All have been great returns. Avoid the frickin trust, my only real loser.

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