When I add up the capacity which will be bring crude to the refining complex on the Gulf, it seems likely that capacity will increase over 1.6 million bpd by the end of 2014.... for instance we have the following:
1. Permian Express Pipeline (2013: 150 mbpd; 2014: 350 mbpd) 2. West Texas Gulf Expansion due in 2013 to 360 mbpd from 280 mbpd 3. Bridge Tex (2014: 278 mbpd) 4. Longhorn (2013: 225 mbpd) 5. Keystone (2013: 700 mbpd) 6. Seaway (by 2013 400 mbpd) (according to the WSJ) 7. Delek's small pipeline reversals...
And there is probably more that I don't know about. You should take seriously the increase in production quantities. I am not sure the best method for estimating it however.
I could be wrong but I think it is something like 8 to 12% of HollyFrontier's feedstock. They never say it explicitly but heavy sour went from being 4% of the 2010 feed stock to 12% of the 2011 feedstock.
My favorite quote from a conference call regarding the brent-wti spread (from HollyFrontier's Q3):
""Roger D. Read - Wells Fargo Securities, LLC, Research Division
I guess maybe to follow up a little bit on the question on the differentials and your opening comments about expecting the differential above pipeline transportation to remain in place for quite a while. What are you seeing that specifically gives you that level of comfort here?
Michael C. Jennings - Chief Executive Officer, President, Director and Member of Executive Committee
Production growth in the Permian and the Bakken, the Mississippian, or Mississippi Lime. Generally, the producers have been very effective in growing production. And incremental pipeline capacity is slow to follow. You take an example project as Magellan's Longhorn conversion out of West Texas. It will drain a significant volume accrued out of the Permian. But Permian is growing at 150,000 barrels per day per year, so that fills that pipe in, effectively, a year's growth. I guess that's our point. We also see the investment going into rail and the amount of crude moving by rail, and we're drawing conclusions from that to say rail is going to be here for a while and the incremental cost of moving that crude by rail is substantially more than cost of putting it through the pipes."(Third Quarter Conference Call)
Lin TV: Still Correcting To The Upside [View article]
Thanks Robin.
"If my memory serves correctly they have at least one JV interest with very significant debt at the entity level. Don't know if the debt is recourse to TVL. Am I remembering correctly and any color on that?"
That is correct. They have a 20% economic interest and Comcast has the remaining 80% economic interest (through NBC). The debt is "in the form of an $815.5 million non-amortizing senior secured note due 2023 bearing interest at an initial rate of 8% per annum until March 1, 2013 and 9% per annum thereafter. The GECC [which stands for: "General Electric Capital Corporation"] Note is an obligation of the joint venture."
Therefore, TVL is theoretically exposed to some $200 million in debt. This is especially true when you look at Note 15 of the 2011 10-K* which basically talks about the ongoing agreements between TVL and NBC (now Comcast) regarding cash shortfalls at the JV to pay for the interest on the debt.
To address your question about recourse, Note 15 states: "Upon an event of default under the GECC Note, GECC's only recourse would be to the joint venture, our equity interest in the joint venture and, after exhausting all remedies against the assets of the joint venture and the other equity interests in the joint venture, to LIN TV pursuant to its guarantee of the full amount of the GECC Note." (Note 15, TVL 2011 10-K)
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
Yes, in theory people who don't understand the political election cycle would, one would think, respond to the data by not holding the shares or by selling them. But their is the alternative view point that (1) an 8% or 9% FCF yield on cost is still competitive (the DJIA sells at about a 7.3% FCF Yield), and (2) that people will know that some future years will be far better for the company. In my opinion, it is pretty easy to argue that the *price* could go either way next year as people respond to milder results. But across that period the intrinsic value of the business will likely be increasing.
Because Belo isn't a screaming buy, although I think its pretty good, it might be prudent to wait and hope for such an irrational decline and make a purchase based on the thesis that the reverse sort of response will happen to the better data in forthcoming years.
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
Good question about 2008, I'll look into it more and get back to you.
When it come to their financials its important to remember that broadcasting has huge levels of intangibles. Indeed, it also has huge levels of goodwill. In 2008, there was a $662 million impairment charge. In 2009, there was a $242 million impairment charge. In the 2009 10-K it states: "Approximately 72.5 percent of our total assets as of December 31, 2009, consisted of intangible assets, principally broadcast licenses and goodwill" (p. 13).
Of the sum of those two ($904 million), $553 million was related to FCC Licenses and $351 million was related to goodwill.
So the company is actually the same as it was -- just the accounting books have changed.
Now, if you look at the revenue figures, there is a huge decline in between late 2006 and 2008. That is due to their spin-off of A. H. Belo corp. It had revenues in 2008 of $484 million and assets of about $400 million. Those are the things I think you are seeing. I've included a quote about the spin-off below:
"- On October 1, 2007, Belo formed A. H. Belo as a wholly-owned subsidiary. On February 8, 2008, the Company contributed all of the stock of its subsidiaries engaged in the newspaper businesses and related assets to A. H. Belo." "- On February 8, 2008, A. H. Belo became a separate, public company. The Company has no further ownership interest in A. H. Belo or in any newspaper or related businesses, and A. H. Belo has no ownership interest in the Company or in any television station or related businesses. Belo’s relationship with A. H. Belo is now governed by a separation and distribution agreement between the two companies, a services agreement and certain other agreements between the two companies or their respective subsidiaries. Belo and A. H. Belo also co-own certain downtown Dallas, Texas real estate. See Item 7–Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Distribution of A. H. Belo." (Belo Corp. 2007 Annual Report on Form 10-K, p. 3)
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
Well a $9 share price would give it a $936 million market capitalization. Given my estimate of an average (over the entire cycle) free-cash-flow of $100 million plus $10 million for the future reduction in interest expense (sum = $110 million), at $9 dollars it would be trading at a free-cash-flow yield of about 11.7%.
The DJIA's avg FCF is about 7.2%, and we should expect Belo to trade at a yield above that (or I would anyways...)
So, yes, a $9 share price is realistic. Whether we see that is another story of course, but it is not crazy.
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
Good questions Robin.
Before I answer number one, if you look at the Form 4 filings, there has also been significant insider selling. Although because of the various size of the transactions, I wouldn't make a heads or tails of it -- meaning it definitely wasn't a GOOD thing, but it might not necessarily be a bad thing. It could have just been estate planning. Anyways, I'll answer your Q's.
"1) Do you want a discount for the dual class share structure? If not, why not? I do not like the fact that the insiders' modest economic interest translates into control."
In some ways, yes I should discount for the dual class structure. However, total Series B voting power is about 10,109,941 * 10 or 100,109,941 and total Series A is 93,907,051. So insiders do have control (not to mention that series B can only be transfered to "family members and affiliated entities of the holder" -- which is a bit ridiculous). Perhaps I am a bit desensitized to this, but Belo isn't nearly as bad as Lin TV who has 3 classes and its Class C has 70% of the voting power.
So, I don't like their level of control either -- but I wouldn't have enough capital to influence control so I sort of let it be moot. It might be appropriate to add a few percentage points to the discount rate used to value future cash flows... or that is what I would do it the ownership structure worried me.
I'm writing about Lin TV -- whose ownership structure is even more ridiculous -- and I make a point to show the power structure in that article. Good question though. For those interested, I've included Belo's description of the ownsership structure. From the 10-K, p. 14:
"The Company has two series of common stock outstanding, Series A and Series B. Shares of the two series are identical in all respects except as noted herein. Series B shares are entitled to 10 votes per share on all matters submitted to a vote of shareholders; Series A shares are entitled to one vote per share. Transferability of the Series B shares is limited to family members and affiliated entities of the holder and Series B shares are convertible at any time on a one-for-one basis into Series A shares, and upon a transfer other than as described above, Series B shares automatically convert into Series A shares. Shares of the Company’s Series A common stock are traded on the New York Stock Exchange (NYSE symbol: BLC). There is no established public trading market for shares of Series B common stock."
Q2: 2) "What do you think of management? Was the near death experience for the equity the result of the same people running the company today? If so, how do you get comfortable that they won't get crazy again?"
I think management presents itself very well. CEO Dunia A. Shive is particularly articulate. I am not so sure I blame management for the near death of the equity -- although I think I am going to think about that one some more. Evaluating management is one of the hardest things to do, in my opinion...
"3) If their pension plan produces 3-5% returns instead of the assumed 7.75% (doing that from memory) how will that affect FCF. In other words, does your figure above include pension cost for the ttm?"
Well it would definitely effect FCF if they rushed to save its underfunded status (at about $112 million at Dec 31. 2011). If they achieve a lower return in the future many others will likely experience the same thing so it would likely be a large problem within the total environment. But from a cash flow stand point I am not so sure it worries me immediately for a few reasons. The main one being that discount rates used today are pretty low and are therefore causing the underfunded status of pension plans to grow larger. When discount rates (i.e., interest rates generally) rise, the opposite will happen making the pension obligation smaller in the future. So if they didn't get their desired return that would be a problem but likely offset by a higher discount rate.
So yes, just as debt payments will lower the actual cash available to shareholders (although paying down the debt adds more value to the equity), playing catch up with the pension plan would effect free-cash-flow but it would be good for a long-term shareholder.
Maybe I should be worried that I am growing desensitized but I've seen worse pension plan positions.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
Good, Berkshire is worth far more than 120% of its current book value.
HollyFrontier Is A Pure Play In The Mid-Continent [View article]
Ah, thanks Etep. PSX would be first, of course, with revenue for the first nine months of 2012 of $138 billion (annualized, $180 billion). HollyFrontier, then, should be 10th. Good looking out.
HollyFrontier Is A Pure Play In The Mid-Continent [View article]
That is correct but pipeline transit is cheaper -- and it is economically reasonable to think that trains will eventually be replaced by pipelines if the crude will be flowing long enough. But your are right about trains: TSO in Washington and DK at El Dorado (Arkansas) both built train-off loading facilities within the last year.
Refiners Face Two Short-Term Risks [View article]
Refiners Face Two Short-Term Risks [View article]
When I add up the capacity which will be bring crude to the refining complex on the Gulf, it seems likely that capacity will increase over 1.6 million bpd by the end of 2014.... for instance we have the following:
1. Permian Express Pipeline (2013: 150 mbpd; 2014: 350 mbpd)
2. West Texas Gulf Expansion due in 2013 to 360 mbpd from 280 mbpd
3. Bridge Tex (2014: 278 mbpd)
4. Longhorn (2013: 225 mbpd)
5. Keystone (2013: 700 mbpd)
6. Seaway (by 2013 400 mbpd) (according to the WSJ)
7. Delek's small pipeline reversals...
And there is probably more that I don't know about. You should take seriously the increase in production quantities. I am not sure the best method for estimating it however.
Refiners Face Two Short-Term Risks [View article]
Refiners Face Two Short-Term Risks [View article]
""Roger D. Read - Wells Fargo Securities, LLC, Research Division
I guess maybe to follow up a little bit on the question on the differentials and your opening comments about expecting the differential above pipeline transportation to remain in place for quite a while. What are you seeing that specifically gives you that level of comfort here?
Michael C. Jennings - Chief Executive Officer, President, Director and Member of Executive Committee
Production growth in the Permian and the Bakken, the Mississippian, or Mississippi Lime. Generally, the producers have been very effective in growing production. And incremental pipeline capacity is slow to follow. You take an example project as Magellan's Longhorn conversion out of West Texas. It will drain a significant volume accrued out of the Permian. But Permian is growing at 150,000 barrels per day per year, so that fills that pipe in, effectively, a year's growth. I guess that's our point. We also see the investment going into rail and the amount of crude moving by rail, and we're drawing conclusions from that to say rail is going to be here for a while and the incremental cost of moving that crude by rail is substantially more than cost of putting it through the pipes."(Third Quarter Conference Call)
I've also written about the spread with regards to HollyFrontier ( http://seekingalpha.co... ), Delek US ( http://seekingalpha.co... ) and WNR ( http://seekingalpha.co... ).
Lin TV: Still Correcting To The Upside [View article]
"If my memory serves correctly they have at least one JV interest with very significant debt at the entity level. Don't know if the debt is recourse to TVL. Am I remembering correctly and any color on that?"
That is correct. They have a 20% economic interest and Comcast has the remaining 80% economic interest (through NBC). The debt is "in the form of an $815.5 million non-amortizing senior secured note due 2023 bearing interest at an initial rate of 8% per annum until March 1, 2013 and 9% per annum thereafter. The GECC [which stands for: "General Electric Capital Corporation"] Note is an obligation of the joint venture."
Therefore, TVL is theoretically exposed to some $200 million in debt. This is especially true when you look at Note 15 of the 2011 10-K* which basically talks about the ongoing agreements between TVL and NBC (now Comcast) regarding cash shortfalls at the JV to pay for the interest on the debt.
To address your question about recourse, Note 15 states: "Upon an event of default under the GECC Note, GECC's only recourse would be to the joint venture, our equity interest in the joint venture and, after exhausting all remedies against the assets of the joint venture and the other equity interests in the joint venture, to LIN TV pursuant to its guarantee of the full amount of the GECC Note." (Note 15, TVL 2011 10-K)
* 2011 10-K here (note 15 starts on page F-44): http://1.usa.gov/XvTHQK
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
Because Belo isn't a screaming buy, although I think its pretty good, it might be prudent to wait and hope for such an irrational decline and make a purchase based on the thesis that the reverse sort of response will happen to the better data in forthcoming years.
Valero's Geography: 72% Of Capacity May Prove Well Located [View article]
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
When it come to their financials its important to remember that broadcasting has huge levels of intangibles. Indeed, it also has huge levels of goodwill. In 2008, there was a $662 million impairment charge. In 2009, there was a $242 million impairment charge. In the 2009 10-K it states: "Approximately 72.5 percent of our total assets as of December 31, 2009, consisted of intangible assets, principally broadcast licenses and goodwill" (p. 13).
Of the sum of those two ($904 million), $553 million was related to FCC Licenses and $351 million was related to goodwill.
So the company is actually the same as it was -- just the accounting books have changed.
Now, if you look at the revenue figures, there is a huge decline in between late 2006 and 2008. That is due to their spin-off of A. H. Belo corp. It had revenues in 2008 of $484 million and assets of about $400 million. Those are the things I think you are seeing. I've included a quote about the spin-off below:
"- On October 1, 2007, Belo formed A. H. Belo as a wholly-owned subsidiary. On February 8, 2008, the Company contributed all of the stock of its subsidiaries engaged in the newspaper businesses and related assets to A. H. Belo."
"- On February 8, 2008, A. H. Belo became a separate, public company. The Company has no further ownership interest in A. H. Belo or in any newspaper or related businesses, and A. H. Belo has no ownership interest in the Company or in any television station or related businesses. Belo’s relationship with A. H. Belo is now governed by a separation and distribution agreement between the two companies, a services agreement and certain other agreements between the two companies or their respective subsidiaries. Belo and A. H. Belo also co-own certain downtown Dallas, Texas real estate. See Item 7–Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Distribution of A. H. Belo." (Belo Corp. 2007 Annual Report on Form 10-K, p. 3)
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
The DJIA's avg FCF is about 7.2%, and we should expect Belo to trade at a yield above that (or I would anyways...)
So, yes, a $9 share price is realistic. Whether we see that is another story of course, but it is not crazy.
Belo: Excellent Cash Flow And A 4.5% Dividend [View article]
Before I answer number one, if you look at the Form 4 filings, there has also been significant insider selling. Although because of the various size of the transactions, I wouldn't make a heads or tails of it -- meaning it definitely wasn't a GOOD thing, but it might not necessarily be a bad thing. It could have just been estate planning. Anyways, I'll answer your Q's.
"1) Do you want a discount for the dual class share structure? If not, why not? I do not like the fact that the insiders' modest economic interest translates into control."
In some ways, yes I should discount for the dual class structure. However, total Series B voting power is about 10,109,941 * 10 or 100,109,941 and total Series A is 93,907,051. So insiders do have control (not to mention that series B can only be transfered to "family members and affiliated entities of the holder" -- which is a bit ridiculous). Perhaps I am a bit desensitized to this, but Belo isn't nearly as bad as Lin TV who has 3 classes and its Class C has 70% of the voting power.
So, I don't like their level of control either -- but I wouldn't have enough capital to influence control so I sort of let it be moot. It might be appropriate to add a few percentage points to the discount rate used to value future cash flows... or that is what I would do it the ownership structure worried me.
I'm writing about Lin TV -- whose ownership structure is even more ridiculous -- and I make a point to show the power structure in that article. Good question though. For those interested, I've included Belo's description of the ownsership structure. From the 10-K, p. 14:
"The Company has two series of common stock outstanding, Series A and Series B. Shares of the two series are identical in all respects except as noted herein. Series B shares are entitled to 10 votes per share on all matters submitted to a vote of shareholders; Series A shares are entitled to one vote per share. Transferability of the Series B shares is limited to family members and affiliated entities of the holder and Series B shares are convertible at any time on a one-for-one basis into Series A shares, and upon a transfer other than as described above, Series B shares automatically convert into Series A shares. Shares of the Company’s Series A common stock are traded on the New York Stock Exchange (NYSE symbol: BLC). There is no established public trading market for shares of Series B common stock."
Q2: 2) "What do you think of management? Was the near death experience for the equity the result of the same people running the company today? If so, how do you get comfortable that they won't get crazy again?"
I think management presents itself very well. CEO Dunia A. Shive is particularly articulate. I am not so sure I blame management for the near death of the equity -- although I think I am going to think about that one some more. Evaluating management is one of the hardest things to do, in my opinion...
"3) If their pension plan produces 3-5% returns instead of the assumed 7.75% (doing that from memory) how will that affect FCF. In other words, does your figure above include pension cost for the ttm?"
Well it would definitely effect FCF if they rushed to save its underfunded status (at about $112 million at Dec 31. 2011). If they achieve a lower return in the future many others will likely experience the same thing so it would likely be a large problem within the total environment. But from a cash flow stand point I am not so sure it worries me immediately for a few reasons. The main one being that discount rates used today are pretty low and are therefore causing the underfunded status of pension plans to grow larger. When discount rates (i.e., interest rates generally) rise, the opposite will happen making the pension obligation smaller in the future. So if they didn't get their desired return that would be a problem but likely offset by a higher discount rate.
So yes, just as debt payments will lower the actual cash available to shareholders (although paying down the debt adds more value to the equity), playing catch up with the pension plan would effect free-cash-flow but it would be good for a long-term shareholder.
Maybe I should be worried that I am growing desensitized but I've seen worse pension plan positions.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
Why KeyCorp May Be One Of The Bank Sector's Safest Bets [View article]
Dollar Tree: Betting On Underemployment [View article]
HollyFrontier Is A Pure Play In The Mid-Continent [View article]
HollyFrontier Is A Pure Play In The Mid-Continent [View article]