Teekay Offshore Partners: A View From The Perspective Of A Preferred Investor... An Update

| About: Teekay Offshore (TOO)

Summary

Teekay has had an interesting, yet mildly troubling quarter, share-price-wise, with it's commons up and its preferreds down.

In fact, TOO commons actually performed at the top of its peer group, and even outperformed the S&P this past three months.

Yet the B Series curiously fell by more than a dollar during this time, while the A basically held it own.

This review updates my initial look at Teekay Offshore Partners (NYSE:TOO) from my July 19, 2016, article, "Teekay Offshore Partners: A View From The Perspective Of A Preferred Investor."

Though I hope you will read the original linked article in full, my bottom-line assessment and buy recommendation at the time were as follow

Ultimately, I must decide whether or not I believe in the long-term survivability of TOO, which I view as questionable as long as the present oil market remains as volatile as it has been. The good news as reported by Moody's concerns TOO's increased access to capital, hence its increased liquidity, which appears to have stabilized this company. I remain skeptical enough not to want to invest in this company at this time. The good news is Teekay's leading position in its business markets and the largely contracted revenue base in the family's LNG, FPSO and shuttle tankers, which partially offsets its highly leveraged profile on a consolidated basis. The bad is that continued weakness in the underlying energy markets will likely lead to profit margin pressures that would limit its ability to support material debt reduction.

Let's see how TOO's commons have performed over the past quarter since I wrote the previous article. Because of the greater volume of common shares traded as opposed to the limited liquidity of most preferreds, I find the commons to be a better indicator of a company's overall performance.

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It appears that over the past three months, TOO's share price movement has been on a rollercoaster ride, yet it has trended slightly upward. On July 14, 2016, it traded at $5.75, now it's priced at $6.03. That's an $0.28 increase in three months. Nice, but nothing to write home about.

Now let's compare TOO's share price performance over the past three months in relation to a number of its peers. Chart provided by Yahoo Finance:

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According to the Yahoo chart above, TOO placed close to the top of its peer group, which is really nice because at the time of my last report, TOO placed near the very bottom. In fact, TOO even outperformed the S&P 500. The peer comparisons charted above are: GasLog Ltd. (NYSE:GLOP), Nordic American Tanker (NYSE:NAT), Dynagas LNG (NYSE:DLNG), Hoegh LNG (NYSE:HMLP), and Navigator Holdings (NYSE:NVGS).

Before we discuss TOO's future prospects, let's see how its preferred has fared during the past three months. The following chart is provided by MarketWatch:

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Now this is an interesting can of worms. Although the common performed reasonably well, even outperforming the S&P, the perferreds have not. The A Series, after a brief moment in the sun, fell back to a bit below where it was priced at the beginning of the quarter. But the B, Series, which yours truly is invested in, fell by more than a dollar in value. I am not a happy camper, yet I'm not abandoning this ship, nor its company. But, I will be paying closer attention.

Let's start by determining which preferred is the better buy at their current prices:

TOO Preferreds 10-13-16
Symbol Yearly Dividend Price Dividend/Price Yield Best
TOO-A 1.8125 19.94 1.8125/19.94 9.09%
TOO-B 2.125 21.12 2.125/21.12 10.06 Best
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Now for that recommendation you have been eagerly awaiting. TOO-B is the best buy even though the A Series has the best dollar upside when called. However, that won't happen until after the B because the B will be called first simply because it costs TOO more per share in interest.

Now for a little forward guidance

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Because as a long-term cumulative preferred investor, I am little concerned about quarterly financial reports and their attendant conference calls, which are liberally spun, I don't bother paying much attention to them unless the particular company is at risk of suffering some existential threat. Teekay might be one of those companies worth taking a closer look at.

According to the above chart of Tekays financial highlights provided by Finviz, TOO's common share performance these past three months did not quite make up for its terrible performance over the past year. For the year it was down -58.98%, although for the 1/2 year up 1.85%, the quarter 8.91% and the past month 9.45%.

TOO has a market cap of 867.83 million, yet on sales of $1.24 billion it lost $180.60 million. It carries a current D/E of 3.57 and a long-term D/E of 2.94.

Consequently, verbatim, I am going to recommend the following as I did in the previous report:

Ultimately, I must decide whether or not I believe in the long-term survivability of TOO, which I view as questionable as long as the present oil market remains as volatile as it has been. The good news as reported by Moody's concerns TOO's increased access to capital, hence its increased liquidity, which appears to have stabilized this company. I remain skeptical enough not to want to invest in this company at this time. The good news is Teekay's leading position in its business markets and the largely contracted revenue base in the family's LNG, FPSO and shuttle tankers, which partially offsets its highly leveraged profile on a consolidated basis. The bad is that continued weakness in the underlying energy markets will likely lead to profit margin pressures that would limit its ability to support material debt reduction.

Disclosure: I am/we are long TOO-B.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.