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
Gee, a buyback would have been nice back then when the shares were in the mid 60s...was a great way to leverage the companies dividend growth over the next few years. Such a waste to see the balance sheet untapped.
Well geoequities, it seems no matter what I write, you find something to complain about, so either you really believe that the sky is falling and that all of the GP's are going to crash and the world will cease using hydrocarbon based fuel most likely rendering the use of this internet message board useless, or perhaps you are just carrying over the "issue"(you know, the one where you said I was out of line for calling MWP management crooks, failures etc- just for the record, I was emailed that link by an individual and I sent it on to Markwest IR via email for confirmation or denial and had to send it 2 or 3 times before they would respond to it, and when they did respond, the answer was, "our Mr Ostberg was in school at this time" nothing else. Heck, that doesn't mean its not the same Ostberg, he could be 45 years old and working on a JD or an MBA, so maybe if MW management weren't so cutesy and learned to respond to legitimate shareholder concerns, they wouldn't have to fight fires by sending the lackey General Counsel to post on public message boards).
Yes 40x multiples are unrealistic, 20x to 27x multiples are not. Look at most of your utility companies yielding 4%+/-.
One thing you have not really mentioned is that XTXI is debt free, the GP is not a capital intensive business. They have to fund 2% of any equity raised through a cash contribution. In others words, a 100 million dollar acquisition at XTEX, which would ultimately end up being financed 50/50, meaning XTEX would raise 50 million in equity, that would mean that the GP would be responsible for about 1 million bucks, or 2% of the equity portion. A billion dollar deal would cost XTXi around 10 million bucks for its part, with XTEX footing the rest of the bill.
As to outliers (i.e the low yield MLPs)However, one cannot overlook the fact that many of these MLP's are priced with low yields(high multiples) out of the IPO because the capital base is so small that any sized deal will grow it. Hiland seems to be an example as well as Wiliams Partners. Far to rich for my taste, but the capital base is so small that these 10-25 million dollar under the radar deals are significant to them.
Not sure what you define GP take as, but when I look at XTXI, I compartmentalize the cash flow streams between the cash they get from the 10 million LP units they own, and the cash that comes from owning the GP(i.e. the 2% economic interest and the incentive distribution rights). I see you 54 million number, which is very close to what I get when I assume a $2.4 distribution at XTEX and 26 million XTEX units outstanding. Just trying to clarify.
I did not challenge your analysis or the even better one by Lehman. I bank on the $3/share. At $2.40/unit you get $54M GP take, which will translate to roughly $3/share.
The question: what will this translate re: XTXI share price? i.e. what will the XTXI multiple be? My prediction: 22X. A risky prediction, of course. But in the process, I hope to have some people get unstuck from assumptions that they hold near and dear:
* GP multiples should be 30-40X
* GP prices are greatly influenced by interest rates
* GP dividends and prices will be growing in a straight line for 5+ years.
We have already heard on the conference calls how accretive the Barnett Shale pipeline and the El aso deals will be. I suggest you go back about 100 posts or so and see the analysis that I posted. I will try to rehash it tonite when I get the chance. With just the Barnett pipeline and the El Paso deal, they have the ability to push the distribution to $2.40. That should push the dividend to $3.00. They have given values for the LIG project with Kinder Morgan and talked a little about the South Louisiana deal which is still not a done deal. Just look back at the post made about 6 weeks ago.
No its not hard to make money that way, its called ARBITRAGE. Borrow money at 7.5%(i.e. sell units to the public) and invest at 10%(i.e. buy an asset at 10x cash flow) and pocket the spread. Its as simple as that. Just to let you know, their is a huge difference in the cost of capital and demanded return on investment for individuals vs corporations. Many retirees are quite happy to draw 6%-8% return (i.e. buy MLP units and sit back and collect the distributions). The company I work for has a hurdle rate of around 34%, meaning a simple (i.e no compounding, cost of capital considerations) payback of around 3 years. What you are seeing is a lot of corporations (major oils, E&P's etc), divesting assets at 10x cash flow (the trend used to be around 6x or 7x) and putting that money into highly lucrative projects(deep GOM wells, unconventional E&P type plays like the Barnett Shale, LNG, tertiary recovery etc). Its not a difficult concept to understand, its arbitrage when you dig down deep.
Your right, expansion projects with 1x multiples are few and far between. Expansion projects with multiples of 5x are quite common. But they do exist. You make it sound as if in 3 years, all projects will cease to exist and everything that can be built will have been built and everything that can be bought will have already been bought. One of the brokerages did a study of the available MLP qualified assets a few years ago and the value was staggering.
> Assuming a $5-6 dividend for XTXI in 2008 that should double the share price from here (at least).
Yes, it would, but you must think that such a dividend is indeed possible. Use a spreadsheet.
Current GP income per share = $2.46
With $3/unit distribution for XTEX and 9M more units (28.5 XTEX units) the XTXI income will be and some dilution (management options) and you get around $4/share. The GP tax is 55% and the cost of new equity is 10+%. Lower growth prospects equal lower multiples (the main thesis of my posting). Multiply with 22x multiple and you get $88/share.
Very good, but hardly a double. And, of course, you have to get there. BTW, notice something:
XTEX unit price will be up by about 30%.
XTXI unit will be up by about 40% but with lower distributions along the way.
For a $6 dividend, the XTEX distribution will have to go to $4/year. At that point the GP tax is 66% and the cost of new equity is 20%. What do you think is going to happen to the XTXI multiple?
Per the SEC, Barry Davis, the CEO, is selling 3000 shares every two weeks as part of a 10b5-1 arrangement. At that rate, he would need to sell for the next 8 years to get rid of 591,000+ shares and that's if he doesn;t receive any more shares. Highly unlikely. I wouldn't worry, this is probably his financial advisors just telling him to diversify a little. Not bad advice for any of us.
BTW, the math is just fine. You are confusing investment return with cost of capital.
I wrote about what should be the return of the investment so that the LPs will get 7% cash out of it. It has to return 10%. Any disagreement with that?
So, someone making 10% should sell his pipeline to me so that I can make 7%. It's hard to make money this way. (Yes, I know what you're gonna say: the wonderful expansions, lower cost of G&A etc. Just read further on my posting.)
Only on the amount that is past the 50/50 split, which starts around $1.50/unit. XTXI, not counting the LP units that it owns, gets 23% of the total cash paid out by XTEX (for every unit outstanding, roughly $2.56 is paid out, with $.60 going to the GP and $1.96 going to the LP).
The amount they make from the 2%, 15% tier, and 25% tier is rather miniscule, totaling around .15/unit.