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Factoids
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I seek to liberate investors from the chains of borrowed opinions by teaching metric awareness that leads to the formation of your own opinions. I am a retail investor that gathers, processes and analyzes significantly more data than average. I share that data in my articles. I let the data do... More
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  • Why I Purchased VTTI 1 comment
    Aug 26, 2014 3:21 PM

    I had dollars from my sale of KMP sitting at the brokerage. It is so much easier to pull the trigger on a transaction when the money is already sitting there. Tiny things like that matter. And . . . . the due diligence I was doing in other sectors was resulting in finding lots of little things wrong with a heck of a lot of companies. The yields were too low for good companies. When I found OK yields, credit metrics were just average. Some lacked publicly traded debt and credit ratings. Generating historical EPS projection accuracy was a tough task. I was not finding multiple CAGR projections for many. Etc.

    Then along comes a flood of reports on recent IPO VTTI Energy Partners LP (NYSE:VTTI). The minimum distribution is $0.27 - so let's use that as the beginning quarterly payout. At $25, the yield is 4.32%. The CAGR projections (I found multiple sources) were as low as 12% to as high as 18% (I'll use 15% for my CAGR at this point in time). So you have a yield + CAGR of 19.32%.

    Other stocks yielding around 4% - (prices as of 8-01-14)

    EPD 3.93% yield - 5.88% LTM dist growth

    GEL 4..40% yield - 10.78% LTM dist growth

    PPA 4.58% yield - 9.79% LTM dist growth

    NGLS 4.65% yield - 9.09% LTM dist growth

    VTTI at a 4.32% yield looked attractive if you can live with the added risk -- and changes in the risk assessment will also result in price volatility.

    PRO - high percentage of fee based income on long term contracts

    PRO - Its GP has lots of properties to drop down to VTTI

    PRO - No K-1 - (you will see in the cons why I would not want to make a "married for life" commitment here).

    CON - No tax deferral - but my expectation is that most of the total return will be from price appreciation

    CON - Vitol (its co-GP) is the source of 75% of its income. As Vitol goes, so will VTTI. Vitol is an E&P and energy trader.

    CON - Its predominantly foreign - and appears to predominantly be involved in international shipping from lots of South African countries.

    CON - Currency volatility could become a problem

    Summation - There is lots that "can" go wrong - so any decision needed to result in a lite weighting. But the "yield + CAGR" was too inviting to pass up. I purchased a little.

    Be forewarned - the "equity RRR" that goes into the "yield + CAGR - RRR" equation" is going to be high for VTTI - it should higher than the RRRs that goes into E&P valuations. I have no idea (and will not have a good idea for a few years) what a good RRR for VTTI should be.

    Disclosure: The author is long VTTI.

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  • bullsbearspigs
    , contributor
    Comments (188) | Send Message
     
    nice buy Bob...evidently the underwriter initiations and lack of new ideas currently out there created a nice tailwind...
    I kicked it today after getting some on the IPO...but will revisit as the company reports their results...picked up some RIGP and WLKP same day as VTTI IPO, still long those...

     

    Bulls
    28 Aug 2014, 09:34 PM Reply Like
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