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This week's SA articlesBesides the articles listed below, several MLPs presented at the UBS Midstream Conference and the slide presentations are available. I noticed USAC, TCP, SHLX, NS, GEL and DCP but there may be others. BX – January 14 article by Ishan Puri, Bullish rating, 26 comments. Mr. Puri posted his first article on SA on December 31; this is his 3rd article. He has nothing to sell. BX (Blackstone) was a PTP until July 1 of last year when it changed its tax status to a corporation. It’s one of the world’s biggest alternative asset managers. It did great last year (up about 100%) and is one of the poster children that gets mentioned when people say MLPs will get a higher valuation if they incorporate. I own it so I still cover it here. The article starts with a brief intro to BX, its 4 business lines (real estate, credit, private equity and hedge funds) and lists a few of its competitors. He talks about a few developments but his biggest point is that the conversion to corporate status should (1) get BX included in more indexes, which should spur funds buying BX and (2) more individual investors will buy it (I guess because no K-1). The article is a little confusing in places and I’m not sure every one of his facts are correct. For instance, CG (a competitor that switched from partnership to corporation a few weeks ago) did a complete conversion to corporate status. CG said they are the only alt manager to do a full conversion, and they said this will help them get included in indexes. Even though I own BX, I don’t know the exact nature of its corporate conversion – I just know it wasn’t taxable. So I figured I learn more when the 10-K came out. EVA – January 15 article by Mauro Solis, Neutral rating, 14 comments. Mr. Solis is new to me. He says he is an engineer and he focuses on green tech, which is the connection to EVA, I guess. Aside – I’m a mostly retired accountant and years ago when I practiced, if I met a new client and he pulled out a pad of graph paper with his tax information, I knew he was an engineer and probably detailed-oriented (maybe anal is a better word). Mr. Solis seems similar. No graph paper, but a bunch of graphs and charts that he created so there’s his engineering background. They are confusing, though. He shows that wood chips have similar energy content as PRB coal but fails to mention that PRB coal is pretty low energy content, compared to eastern coal. PRB coal’s main advantage is that it’s super cheap. For those of you that ever followed the Investment Club magazine, you might appreciate that Mr. Solis projects out the next few years’ operations and showing the trend rates he used for each line item. I appreciate the try, but some of his assumptions make little sense – for example “ The gross margin has oscillated from 0.1% and 17%, with a tendency to be negative.” Negative gross margin? I don’t think so. Or maybe he means the trend is negative – but then he uses an above average gross margin rate for his projections. Same thing with some of the expenses, which were affected by storms, floods and fires. Similarly, he uses smooth annual changes for revenue and expenses, but EVA’s sales increase in steps as new contracts come into effect. Anyway, I liked the attempt and these are just small points. EVA makes wood pellets and sells them under long term take-or-pay contracts with European utilities that use the chips to supplement their use of coal and help them meet various emission standards. They have similar contracts with a few Asian utilities but I don’t think EVA has started deliveries on those contracts yet. Most articles about EVA focus on whether burning wood is any better than burning coal, and speculate that wind and solar will replace both. Mr. Solis thinks nuclear may be the best solution and he says that’s the way Japan is going. I wouldn’t think this is a popular opinion among the commenters. So with all his charts, he thinks there is a risk in EVA’s business model and it is overpriced so he’s neutral. Me – Maybe Japan is sticking with nuclear, but I don’t think anyone else is. And I think EVA’s business model has a built-in expiration date, as European use of coal drops off. EVA has long-term contracts so this isn’t an immediate concern. And EVA has lots of related party transactions, which always concern me as to fair pricing. And did I mention that EVA did great in 2019 – up 44%, including distributions. It was also up in 2018 (all due to the distribution) which is something that not many energy MLPs can say. Dumb me – I sold way too soon, as part of my dumping all coal-related MLPs. DMLP – January 13 article by Hidden Opportunity, Bullish rating, 12 comments. This is the first MLP article that I know of by HO. He’s an individual investor (nothing to sell) focused on underfollowed companies with potential. Looking at his prior (non-MLP) posts, I haven’t heard of the majority of the companies. DMLP is a relatively small oil & gas royalty MLP. Over the last 12 months it has out-performed the other royalty companies that I know of, and by quite a large difference. Per Yahoo, it’s up 30% compared to losses at the 2 biggies and smaller gains for the other 2 SMID companies. The article starts with a brief description of the different kinds of royalty interests and then shows that DMLP has maintained its reserves since 2003. This information comes from the 10-K but it’s a little puzzling – it seems to show that the vast majority of DMLPs current reserves represents acreage that has been owned since 2003. I own DMLP and wouldn’t think that’s right but the info comes from the company so I guess it is. The constant level of reserves really impresses HO. He also talks about a recent acquisition and the fact that DMLP pays a variable distribution. He likes that insiders have been buying DMLP units, and I think he misunderstands the purchases. This isn’t a big deal, tho. No IDRs. No debt. Me – I’ll add a few things. 1. DMLP takes the position that is passive and is not operating a business. Therefore, it does not generate or report UBTI even though it issues K-1s. 2. For the same reason, DMLP says any K-1 income does not qualify for the 20% PTP income deduction. ET – January 16 article by Marel., Very Bullish rating, 41 comments. Marel. Is an individual investor with a focus on value. He posted for 6 months on SA thru mid-2016 and then stopped for 3 years, resuming this past July. He seems to write mostly about mall REITs, which have traded just about as badly as MLPs in recent years. He has been bullish and right on ET since November, when it traded in the low $11s. He followed up in mid December and now he has posted another follow-up. He has nothing to sell. This article points out that he was right in his earlier posts. Other than that, he updates a few developments – lower cap ex plans for 2020, recently debt and preferreds issuances, raised estimate of 2019 EBITDA and the completion of the SEMG acquisition. Not much else. Also ET – January 16 article by The Value Portfolio, Very Bullish rating, 2 comments. TVP has been posting about MLPs fairly frequently recently, and he has a service to sell that is focused on energy companies. TVP wrote an article on ET 10 days ago; it got 200+ comments so he’s updating his post (1) to address some of those comments and (2) to reflect a recent investor presentation ET did. First, a minor annoyance. Twice in this article TVP brags about his prior post (remember, only 10 days ago) – he calls it a “successful article” and “extremely popular”. Maybe his test is how many clicks he gets, but I remember some of the comments being pretty nasty. To refresh your memory, in that article, TVP referred to ET as a company engaged in natural gas and propane exploration, and I recall quite a few comments calling him out on that. Anyway, that article was posted such a short time ago, there isn’t much for him to add yet. His points: 1. ET is agnostic as to natural gas prices; it only cares about volumes, which are booming. (Nothing about low prices maybe causing volumes to slow.) 2. Great distribution coverage, with money left over to fund expansion. 3. People dislike management and don’t trust them to do the right thing for the public LPs. But Mr. Warren owns 10% of the company so he will do the right things. 4. The market hates MLPs. TVP just says he doesn’t think this is a major issue. 5. Climate change – TVP says his articles aren’t designed to address this. 6. The first article didn’t discuss the SEMG acquisition. This article says he likes it. Overall, this article only makes sense if you go back and read the first article. If you own or know just about anything about ET, the 2 articles won’t tell you very much. And there are better introductory articles to ET out there on SA. My bias – The 2 biggest midstream MLPs – EPD and ET (and probably the biggest former MLPs as well, like KMI) - are so big and involved in so many different operations that I don’t think most SA articles can do them justice. All I can do is look at the operating results and the major headlines. So I don’t expect much from the introductory-type articles like this one. 6-month report card. 6 months ago, there weren’t very many MLP articles that had recommendations. Crunching Numbers was bullish on FUN, and it’s up 13% since then. Rida Morwa was bullish on NSS, a baby bond issued by NS, and it’s up about 7%. And Laurentian Research was bullish on MMP, but they pulled that rec and went Neutral a week later. So no 6-month results. |
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Msg # | Subject | Author | Recs | Date Posted |
114239 | Re: This week's SA articles | Q77 | 10 | 1/17/2020 6:09:40 PM |