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  • Oil Crash Drags Down The Misunderstood Natural Gas Services Group To Attractive Valuation [View article]
    Having been in the leasing and rental business, your article got me excited about finding a potential bargain on a great business. But after reviewing Morningstar's Key Ratio page, there is a big problem. The company does not earn a ROIC in excess of its cost of capital. The company has not earned a double digit return on equity since '08. In the last 5 years it has ranged between 4.8-7.8%. It was 7% in '14. Since the company has no debt, its return on capital is about the same. It's cost of equity is easily between 10-12%. Would you invest in a rental business with utilization risk for less than that???

    Alex A. above hit the nail on the head. Why aren't they paying a dividend? You claim they are reinvesting their OCF in new equipment to grow. I don't see the growth part of that. The last 5 years have seen a huge growth in US oil and gas production and well drilling. This should have been this company's salad days. Unfortunately, sales only grew 7.4% per year and net income 5.1%. But the real story is in the FCF. It has been $0. OCF has grown only 1.8%. For '10 to '14, OCF was $172, capex $179. They did not pay a dividend because they don't generate any cash. (But at least they did not have to increase debt.) While they made net income each year with a 15% net margin, they broke even on a cash basis. This is not a great business.

    The key metric for a rental business is asset turnover. That shows how much sales you are generating from your rent-able assets - in other words, utilization. While it has remained fairly consistent over the past 5 years between .29 and .42 averaging .35, this down considerably from the >.5 the company was able to generate for the 3 years between '06 and '08. The company is either not charging enough or the utilization is too low or both. In the long run this business will destroy value.

    Finally, the company trades a 1.5x BV with a 7% ROE. Since there is minimal growth, that is like buying a 7% bond for a 50% premium so all you get is 5%. As the "cupon" is not fixed nor is their a maturity date, I don't see the equity of this company being a compelling investment at this price (or any price). If NGS could not make decent returns over the last 5 years, I don't they ever will.

    Best regards,
    Skip
    May 2, 2015. 02:22 PM | 7 Likes Like |Link to Comment
  • Argonaut Gold's Bullish Growth Strategy [View article]
    thanks for mentioning this. It was a big miss
    Apr 5, 2015. 11:40 AM | 1 Like Like |Link to Comment
  • Argonaut Gold Is Undervalued And Could Grow Production By 300% [View article]
    No mention of the political strife at San Antonio mine with local authorities. There is no assurance that mining permits will be granted. Big omission on your part
    Best regards
    Feb 28, 2015. 09:51 AM | Likes Like |Link to Comment
  • Vanguard Natural Resources Bonds - Updated Outlook [View article]
    Just skimmed your aritcle will read later in depth. Forgive me if you covered this.
    I noticed that their hedge coverage increased as a % of projected revenues from their last report. I think this bodes well.
    Also noticed that their distribution coverage increased to 1.2x. That's big and it gives them free cash flow to develop and complete new wells or for acquisitions. I think that is a good reflection on management.
    Looks like the preferreds are in good shape as well
    Best regards,
    Skip
    Feb 18, 2015. 09:40 AM | Likes Like |Link to Comment
  • Argonaut Gold: Recent Developments At Magino And San Agustin Mean Still More Upside [View article]
    So you think A's management are competent capital allocators??
    Jan 28, 2015. 11:31 AM | Likes Like |Link to Comment
  • Argonaut Gold: Recent Developments At Magino And San Agustin Mean Still More Upside [View article]
    Ben,
    Given the company does not have the capital to develop Mangino, do you think it was a wise decision to buy the mine at all? St Augistin seems like a good bolt on acquisition that will be accretive. It seems to add more doubt than certainty. And there is plenty of that at the company with San Antonio. Their IR person categorized San Antonio as a political issue that should get worked out. Hope she is right.
    Jan 27, 2015. 03:40 PM | Likes Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Yep its a speculation!
    I think a dividend cut is inevitable after '15 if energy prices stay this low. That will hurt the stock price (duh) But they will survive and I would expect the stock to recover and more so when energy prices finally recover (if they ever do). It is going to be a bumpy ride. As you said its a speculation.
    consider looking at debt and preferreds of some of these companies. You are higher in the capital stack and should be OK.
    Jan 23, 2015. 03:10 PM | Likes Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Hi,
    Thanks
    Good luck with stopping the relentless selling but today seems like a good start.
    Jan 23, 2015. 03:04 PM | Likes Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Would you be kind enough to actually address the specific you see in MEMP and dispense with your general feelings. I am very interested in understanding what you see. Thank you
    Jan 23, 2015. 03:02 PM | Likes Like |Link to Comment
  • BreitBurn Energy Partners Investment Thesis [View article]
    I disagree with your assertion here. All the guy is saying is that if oil prices remain low for longer than a year, then the company is in real trouble. That is a definite possibility given the borrowing base revision.
    I hope you are right and oil prices recover. I suspect in the long run (whenever that is) you are. But the investment point here is to put your money into companies that have a safe and long runway to allow for energy prices to take off. Doubt this company qualifies.
    Jan 23, 2015. 02:39 PM | 1 Like Like |Link to Comment
  • BreitBurn Energy Partners Investment Thesis [View article]
    Hi,
    Great points. You took the words right out of my mouth.
    Jan 23, 2015. 02:25 PM | Likes Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Note that the hedge position is set forth in the table above. They go out 5 years.
    Jan 22, 2015. 11:42 AM | Likes Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Do you have any numbers to support your assertions? One of the points of hedging is to lock in cash flows that can support the debt. The LOC is due in '18. The notes are due in '21 and '22. There is only $301m outstanding under their line. Even if their borrowing base is cut 60% to $560m, they still cover their line. I don't see this company in a debt bind. What are you seeing that I don't?
    Thanks
    Jan 21, 2015. 03:56 PM | 1 Like Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Thanks very much for that great piece of work.
    At $16, the stock is trading at about 1.4x BV. I am always skeptical of companies buying back stock for above BV. The true fair value of the company is a hard number to determine and managements always tend to be overly optimistic. Have you done a valuation on the business?
    I agree with you that MEMP has done the best job of hedging and really sticking to the game plan. Would not it make more sense to make very accretive acquisitions rather than buy back stock?
    Of course the other intriguing investment opportunity is the senior debt. I looked at it and it does not trade - I found the securities but nothing trading on fidelity. I did buy some VNR debt and a lesser amount of preferred. The MEMP debt is attractive because it has very little bank debt in front of it.
    Thanks again and best regards,
    Jan 21, 2015. 03:41 PM | 1 Like Like |Link to Comment
  • Memorial Production Partners: A Well-Hedged, High Yield Speculation On The Recovery Of Energy Prices [View article]
    Nice to hear from you again. The answer is the hedges are pretty solid. It is the company's policy to only undertake hedges with banks who are part of their line. Under the ISDA contract the counterparties have the right of offset in the event that one defaults. Per their 3Q14 10Q, the company says that after taking into account the right of offset, they do not have any counterparty exposure related to their derivative exposure.
    I was unable to find the names of the banks participating in their $2.0B LOC but I would suspect they are the usual cast of big banks. So there is risk there but given the right of offset, I would accept the counterparty risk as an investor. It would not be a reason to to not buy the stock.
    Hope that helps. Let me know if you have any additional insight.
    Best regards,
    Jan 21, 2015. 03:18 PM | 1 Like Like |Link to Comment
COMMENTS STATS
192 Comments
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