I only saw the news release so there must be a lot more to the deal. But ARLP is buying out the rest of White Oak. The only payment that was disclosed was $ 50 MM at closing. There is an earn-out but ARLP doesn’t expect it to result in any significant payments. ARLP has paid $ 275 MM for its original 20% interest, plus more in side deals for reserves, etc. So a $ 50 MM price for the remaining 80% implies a huge reduction in value of the operation.
ARLP was supposed to recoup its prior losses in White Oak’s earnings in 2015 and 2016. That’s not going to happen now. ARLP expected that its investments in White Oak would significantly decline this year and next. I suspect ARLP will now have to spend more money, not less, on White Oak over the next few years. I would think ARLP will need to write down its existing investment in White Oak by a lot, not that there is a third party agreement that shows the real value.
Considering the coal markets, this can’t be a real surprise. It just crystallizes the size of the loss.
You're right about the 39%. I picked up the original 20% but not the amounts paid for the additional Series A units.
But what "other considerations" are you referring to? The ones in the original deal - the sale/leaseback, etc? Or something current? The only other part of the deal that I saw was the earn-out but ARLP said that was expected to be nominal.
And if $ 50 MM plus a nominal earn-out is the real value of 61% of White Oak, ARLP is looking at a pretty big GAAP write-down of its existing investment, I would think.
More importantly, I thought White Oak was going to offset weakness in other parts of ARLP's business over the next 2 years, especially the special allocations of income and distributions. I would think that's off the table now.
Don't get me wrong - I own ARLP and they seem to have driven a really hard bargain in this new deal. Long term, I hope this is a good development and the fact that the units have not tanked on this news indicates that other people aren't dismayed. But the fact that the price hasn't risen much also seems to indicate that the market doesn't know what to think about the deal.
I think that happened on May 26. It certainly didn't happen on July 26. Not July 26 of 2015, that is. I just hope it's news of a deal that would either involve NRP (as a seller, not buyer) or a deal that indicates the value of NRP's interest.
Baird downgraded a competitor today to Underperform - EMES. Maybe HCLP is dropping in sympathy, or maybe Baird said something (more) terrible about the sand business, or maybe Baird also said they don't like HCLP.
That was part of the original deal, back in 2011.
My problem today is hopefully a timing thing - they didn't say much about White Oak's finances. For example, They are paying $ 50 MM for the rest of the equity ownership, but does White Oak have any debt (besides what they owe ARLP)?
I know that ARLP's management has always been really sharp (except I don 't know why they decided to make an immaterial investment in oil & gas). I am certain they know more about coal than I ever will. And I know that they didn't mortgage the house to buy out competitors during the feeding frenzy of 2010/2011 (the debt that is now choking the competition).
But I also know that ARLP has curtailed production this year to match sales projections, and that ARLP has never said anything about White Oak's contract position, so I worry.
I may have posted this before, so excuse me - I was expecting White Oak to be a great help in 2H 2015 and full year 2016 because of ARLP's preferred position, the recouping of losses previously booked, the added royalties on the reserves being leased to White Oak, etc. Now, I expect all those short-term benefits to disappear, with ARLP booking whatever results White Oak produces. Instead, on a short-term basis, I would expect ARLP to record a write-off to bring its investment down to current value. Kind of meaningless, but it will dent ARLP's debt/equity ratio and a few other metrics.
Hopefully by the time ARLP releases Q2 numbers, they will have a ton of things to say.
I used to own both of them. I gave up on CLMT when I thought they were over-extending themselves. And I gave up on CVRR and switched entirely to NTI when I concluded its prospects were better. I haven't followed either of them for about 2 years or so. Sorry I can't help.
CS has a report out this morning on independent refiners. I'm not sure I understand some of their estimates, but for NTI they project Q2 EPS of 92 cents, down from their prior projection of $ 1.31, so that's a big drop. They show consensus EPS at $ 1.08 for Q2, so CS is way below consensus.
For Q2 EBITDA, they project $ 108 MM, down from their prior estimate of $ 147 MM, so that's a really big drop. They show consensus EBITDA is at $ 120 MM, so again CS is way below consensus.
They don't discuss NTI specifically (the numbers are in a chart of the entire industry), but they say "Generally, 2Q shortfalls were driven by narrower crude spreads and/or downtime vs our forecasts."
Quote from the report - "Buy the refiner MLPs. The refiner MLPs, e.g. NTI and CLMT, offer a NTM yield of 9-11%." So I guess they are are expecting reduced distributions over the next 12 months.
They have a chart for East Coast 6-3-2-1 spread based on Brent (NTI is not east coast, obviosuly). The spreads for Q2 were similar to, or slightly higher than, they were last year and about the same as in Q1 on average. They show WCS - LLS spreads as similar to Q1.
Anyway, after all the cuts in projected results, CS still has NTI at Outperform, with a 12-month target price of $ 33, and the most appreciation potential of all the refiners.
BTW, in reviewing some slides from Credit Suisse, they had some comments about CVRR that you might find interesting. You may already know these things, so this may be old news.
CVRR has a turnaround scheduled for 2H 2015 which will depress distributions for whichever quarter it falls in.
Current crude spreads for Bakken and/or WCS have narrowed (also affects NTI, obviously) which provides an offset to strong product margins, but ultimately the company expects these discounts will normalize.
CVRR management expects a continued discount on their crudes realtive to WTI benchmarks over time.
CVRR also has a number of growth projects - growing their logistics business and the refining assets.
I think when they talked about projected yield, they were basing the number on the current price. Otherwise I think they would have said so. But normally, the projected yields in CS' reports are based on today's price.
On the other hand, if I take CS's projected EBITDA, and subtract the company's guidance for interest and tax expense, turnaround, cap ex and discretionary reserve amounts, I get a distribution of about $ 3 or slightly less, which is a 12% yield. They project 2016 EBITDA to be 20% lower, so on a next 12-month basis maybe that gets you to a 9 - 11% yield.
As as the other poster pointed out, no one can really project all the different inputs that go into NTI's results. So I just take CS's projections as guidance to what analysts are thinking/guessing.
2nd answer. I'm really not sure what price they were using to compute the projected yield. For CLMT, I think it's clear they used the current price. I suspect it's the same for NTI but the more I think about your question, the less sure I am. The report didn't have enough information about NTI for me to be sure.
I haven't seen anything I would consider news, but there was an analyst upgrade this morning.
Shares of Voxx International Corp. climbed more than 15 percent in midday trading Monday after the maker of audio equipment and automotive and consumer electronics was raised to a rating of "buy" from "neutral" at Los Angeles brokerage B. Riley & Co.
Stock of Hauppauge-based Voxx added $1.25 to $9.26 in midday trading.
Last week, Voxx posted fiscal first quarter net sales of $164.4 million versus $187 million in the year-ago period. It said the impact of the strong dollar and the sale of a distribution business in Mexico accounted for $15 million of the decline.
B. Riley analyst Scott Tilghman set a 12-month price target of $11 on Voxx shares, according to Bloomberg.
Riley has followed VOXX for a few years now. I have no idea why they upgraded.
You might be right on the revenue line, but GAAP earnings might be anything.
First, maybe everything that I am about to say is premature, since ARLP announced the White Oak deal in July. So maybe everything I am posting will apply in Q3 rather than in Q2 (or maybe I'm just totally wrong).
The GAAP rules have changed in many respects since I retired, so I could easily be wrong about what I am going to say. But ARLP bought out the other owners in White Oak at a price that may indicate that ARLP's investment has been impaired (depending on the split between the Class A and B units that ARLP purchased). So it wouldn't surprise me to see an impairment charge.
Also, ARLP has been booking income from the royalties and handling fees that White Oak pays ARLP. This income has been more than offset by ARLP's booking 100% of White Oak's losses. But once ARLP starts to consolidate White Oak, the intercompany revenues may no longer be booked. I wouldn't think that would have a big effect on the bottom line, though, unless White Oak is just paying minimums in excess of usage.
Unsurprisingly, challenging results should be expected across the space. We update 2Q estimates to reflect spot price deterioration and tweak shipment estimates. Our average EBITDA estimates are 4% below consensus. We highlight Alliance Resource Partners as our top pick and believe its White Oak transaction solidifies distribution growth potential.
NRP doesn't own any interest in OCIR. NRP actually owns a 49% interest in OCI Wyoming (OCIR owns the other 51% of OCI Wyoming). So NRP's interest in OCI Wyoming should be worth something close to OCIR's entite market cap. In addition, OCIR has IDRs which depress its units' value somewhat. Since OCI Wyoming is not subject to the IDRs, NRP's interest might be worth more than OCIR's market cap.
So NRP's interest in OCI Wyoming is worth maybe $ 400 MM - $ 500 MM and hopefully this value will be highlighted when OCIR's parent sells its interest in OCIR.
But saying that NRP's interest in OCI Wyoming is worth more than NRP's entire market cap is missing the point. NRP also has $ 1.4 billion in debt. So NRP's equity value (the part that you and I own, presumably) has to be discounted for the debt.
The US coal export markets have been a disaster for almost 2 years now. FELP, which is NRP's biggest lessee, is a big exporter ("big" being a relative term; It's probably the biggest exporter of thermal coal from the Eastern US, but there are much bigger exporters in the western US). Anyway, FELP has warned for more than a year that they have not been able to sign a single contract to export thermal coal for almost 2 years now. The biggest problem is that as the price of thermal coal has dropped, the shipping costs (which haven't dropped) make exporting noncompetitive with other sources. The second biggest problem is the strength in the US dollar, which makes other countries' coal exports more competitive.
And for met coal, where eastern coal is also exported to Asia, has other problems - China slowdown in demand, Australia has advantages in foreign exchange and shorter transportation, to name a few.
Overall, US coal exports (thermal and met) dropped almost 20% between 2013 and 2014, and they have dropped another 20% so far this year, per the EIA. Throw in the lower sales price per ton, and Eastern US coal exported are dying.
And I would think the transportation costs for moving coal from Mongolia are slightly less than moving it from West Virginia.
You and I follow the same stocks, it seems. I bought some EVA shortly after the IPO and sold it around $ 18. So I took my loss and avoided some further pain as it has continued to drop a little.
General comment - MLPs as a group have underperformed the market for several years now (obviously it depends on the area the MLP operates in) so just about everything is down some. Then, within the MLP space, some areas get more attention than others. For coal names, the attention has all been negative and most of this has been correct.
Then you get to the orphan MLPs - the ones that operate in an area where they are the only MLP out there. SXCP is one of these and another is EVA. As you know, EVA takes wood and makes pellets out of it. It then sells the wood chips to coal-fired power plants, mostly in the UK, where wood chips count as a renewable. So the wood chips help the coal-fired plants satisfy the European requirement for renewable energy. That sounds really dumb to me, but that's what I read.
Anyway, EVA ultimately relies on coal-fired power plants for demand. I think there is 1 UK utility that is EVA's largest customer. So that's strike one.
Secondly, as the only wood chip MLP, I don't think there is any analyst coverage at all and most people have never heard of the company or the business model. So that's strike 2.
And EVA's float (units held by the public) is incredibly small. Again, that hurts interest from the public and the analysts.
So I originally thought EVA would be like OCIR, a small MLP that doesn't correlate to the overall MLP market, and I bought it for diversification. I was wrong, at least in my timing.
Until the whole MLP market improves a bit, I'm still on the sidelines.
First in a series of posts. I’ll bet you can hardly wait.
To state the obvious, NRP’s units have been in free fall this year. They have dropped 71% since December 31. They have dropped 28% in just the last 2 weeks or so. There hasn’t been any unexpected news in the last 2 weeks, so I think the fundamental reason for the drop has to be a re-evaluation of the coal industry, and the technical reason is basically people throwing in the towel.
I bought back in at $ 3.60 and added at $ 3.00 so once again my timing on NRP has been perfect. All I can say in my defense is that I missed almost all of the drop from $ 20 down to $ 2.71. I am now being stubborn in not selling. So I’m trying to convince myself that things are worse than I realize for NRP. This post and the next ones are basically me trying to convince myself to sell. Here’s my latest reason.
One of the advantages that NRP enjoys is that it does not operate any coal mines so it’s not subject to operating risks. In its 10-K NRP says it has limited exposure to environmental risks. I think that assertion is going to be tested by some of its lessees’ bankruptcy filings, as well as by some of its lessees’ not being able to self-bond, or obtain surety coverage, for remediation costs, which has been in the news for the last 6 months.
That’s the summary and feel free to ignore the next posts. They are just quotes from NRP’s 10-K, with some comments from me. I know that companies warn about everything under the sun in the 10-Ks to limit their liability to investors. I know that I have always ignored these warnings. I don’t think I can ignore them any longer.
And I’d like to thank moneyonomics for pointing these parts of the 10-K out to me.