I look at it this way. When it looked like the SEC might never clear the S-4 and the distribution was in jeopardy due to a couple of weak quarters, the stock traded in the mid-to-upper $20 range. With the S-4/A cleared, we now know LINE has access to the capital markets again. And, the BRY deal, while perhaps expensive is said to be cash flow positive, along with a solid quarter and guidance should further secure, if not enhance, the distribution. So, regardless of the way the stock trades in the next couple of months, unless we get a negative surprise from the SEC or the deal, we should head back up over time into the mid-$30's and move on from there, so long as interest rates stay low and oil prices reasonably high. In the meantime, enjoy the monthly distributions. GLTA
Sounds like worst case is $11B over 10 years or about 5% to 6% of current annual cash flow. And, the upside appears to be the rumored settlement that they could reduce the burden 80%, if they pay $2.2B up-front. Seems to me that given results, worst case is already more than priced in and upside to best case could be substantial.
A couple of near-term challenges probably caused people to book some recent gains compounding the decline on weak day in the market already. China could tighten policy at their meeting this weekend. The Brazil tax issue is to be resolved by Nov 29th. The Fed could taper in the US sooner than previously thought given strong numbers today. Obviously, the results were strong and if we get past the China meeting and the tax issue without major incident, then, the next catalyst could be the early December analyst meeting. GLTA
This is not an investigation. This is just another one of those slimy, ambulance chasing law firms trolling for a plaintiff to pursue a settlement fee at the expense of shareholders. It happens with every acquisition these days. In fact, companies budget for the expense as part of their merger budget because it as sure to happen as the sun rising in the east and setting in the west.
It could, but it's still lower than it was when income was half as much and iron ore prices were lower. It all depends on how they guide in the morning. If they are bullish, the stock will continue to climb. If not, the stock could pull back and wait for more data. We still have the tax decision by Nov. 29th and the analyst meeting on December 2nd as near-term potential catalysts. And, they could also increase the dividend materially, especially if the tax situation is favorably concluded.
We need to hear what the guidance is in the morning. Stocks with great quarters aren't being rewarded if they have weak guidance. Based on what VALE management has said to date, I don't think the guidance will be weak. I think they will argue the demand will be there to support the price regardless of increased supply and that all the fear of substantive price erosion in 2014 is overblown and unwarranted. IF they say this, the stock will continue it's climb to the mid-$20's in the coming months. GLTA
If a person chooses to make up their own facts, then, they can justify anything. The truth is that LINE traded pretty steady at $38 after the BRY deal was announced and before the short attack and weak quarterly results. The SEC inquiry happened to ensue, but it's not reasonable to suggest the stock has recouped its pre-SEC level when it should be the combined effect of the short attack, weak quarterly results and the SEC taken together. So, I would argue the level is $38 and, if we reduce that by 8% for the increased dilution of the new deal, then, that takes it down to $35. So, if $35 is our starting point, what else do we know. First, there is another acquisition that has been made. Second, Q3 and guidance for Q4 is much improved. Third, BRY has outperformed expectations. And yet, the SEC inquiry appears to be unresolved, but the risk of any major impact appears materially reduced. All told, IMO the stock should trade between $32 and $35 right now. If they complete the BRY deal and prove the integration is accretive, thus raising the distribution at minimum to the previously projected $3.08, the stock should then move even higher (depending on any SEC news, of course). GLTA
Revenue: Est: $12.29B Actual: $12.9B
Diluted EPS: Est: $0.56; Actual: $0.72
Very solid quarter. No guidance provided in the release (unless I skimmed past of it). Perhaps on the call. If they give solid guidance, the stock is going to move higher tomorrow. GLTA
No, but it seems to me a very strong quarter has already been telegraphed among what we know about China, iron ore prices, cost reductions by VALE, the Real weakness, etc. I am guessing 85+ cents adjusted for FX and the stock breaks through $18 tomorrow. That would still put it below where it was when earnings were half as much and iron ore prices were 30% lower. GL
The S-4/A is done. The SEC has no further questions on it. So, the deal can move forward. That's separate from the continuation of the SEC inquiry.
Couldn't get on call, but from the tidbits so far, would I be off base to suggest that the reason the price jumped to 1.68X was because it was a premium needed to get BRY to go through with a stock/unit deal with the SEC inquiry continuing? And, while the deal appears back on track, the price paid and the SEC inquiry would seem to put a lid on the stock for quite some time. Did they say anything at this point about the level of synergies available in 2014? Set a target? Thx.
Will be interesting to see if he dumps again based on the news that the SEC inquiry continues since that was his reason last time for dumping and his belief it was over was his explanation for buying back in.
At least you are on. I can't get in. Never had trouble before. Please post anything significant. Thx
No doubt, the incremental dilution of the higher bid for the combined company is about 8%. So, if you had hoped to recognize $40 per share in the near-term, you may want to reset your sites to $36.80. But, I would argue that this management team has delivered year after year and none of us know the facts they considered in upping the bid, so we should give them the benefit of the doubt. For example, I doubt they had other meaningful acquisition alternatives. Anything significant would have required equity and no one would want to talk to them when they were subject to an SEC inquiry. With BRY under their belt and the SEC inquiry behind them (if it is), then, they are primed to pursue their strategy of making accretive acquisitions that allow them to raise their distribution, even if the BRY deal ends up taking one step back for two steps forward.
From an operating perspective, they claimed they could increase the distribution to $3.08 with the BRY deal and they have even made a supposedly accretive acquisition in the interim. So, if they can no longer make that commitment, it would raise meaningful concern that they now have to prioritize getting this deal done with the associated dilution v. raising the distribution. And, if they are going down that path, it makes me wonder if they have stretched so far to get the deal done that the distribution itself is a stretch post-dilution. Also, I still want to hear how they explain the increased transportation costs in Q3 since one explanation is that they pushed to recognize revenue that is not sustainable.
I know this all sounds negative and I don't mean to be. I am very long LINE, but these concerns could limit the upside. At the moment, I think the patient investor will be rewarded in a few months when the synergies become apparent, but I am not so certain the next few months will be up and up unless they raise the distribution to demonstrate the strength of the deal, even at the higher price.
By the time of a vote, you can bet the spread will reflect within a couple of pennies the 1.68X ratio (unless there is reason to question the viability of the deal). So, it does appear that the difference in LNCO and BRY SP's need to increase. Anyone selling LINE/LNCO to buy BRY to capture the difference will forego a couple of months of distributions and need to consider their tax consequences. But, for some people, it might make all the sense in the world to sell their LINE/LNCO units and buy BRY now. As for me, I am waiting to hear what management has to say in the morning before deciding anything. If they aren't still raising the distribution to $3.08, then, I will have to seriously consider whether they have overpaid and the implications of such. GLTA
Nice point. Also, BRY has delivered and raised their guidance while LINE missed until the most recent period. And, the spike in transportation costs for LINE in the period does make me wonder if it wasn't related to revenue recognition needed to deliver the quarter rather than true repeatable progress. On the other side of the ledger, LINE did make another accretive acquisition in the interim. We shall see what they have to say tomorrow. Worst case (I am so good at predicting here, LOL), they have to maintain rather than raise the distribution for awhile as they try to get even more costs out of BRY and find additional accretive bolt-on acquisitions. Somehow though, I think they will still raise the dividend to $3.08 so it doesn't look like they stretched here. They want the story to read that they paid more because it was worth it and prove it by still raising the distribution.
It's opposite day. Going long BRY and short LINE today might be better. Very glad they announced this morning and not Wednesday. I am tucking my money to short BRY back in my pocket as we speak, LOL.
But, I am long LINE and will just wait and see what management has to say Wednesday. I don't know if it's a fair price to pay or not, but the increase to 1.68X is an additional 10% dilution for LINE shareholders. GLTA
on RIo Tinto's largest shareholder discussing how China mineral demand will continue to outstrip GDP growth in the coming decade due to urbanization and industrialization. He notes that this is why some miners are increasing supply, while some analysts worry of a glut. FYI and GLTA. It should be a very good week for VALE shareholders when earnings are reported. Then, perhaps a few nerves set in as we approach the Nov, 29th deadline for Brazil to decide what they are going to do about the tax situation (though it would seem a worst case scenario is already priced in and it could only be good for the stock if it's better), and then, the Dec. 6th VALE analyst meeting.