SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Gold/Mining/Energy : NGL to da moon (well, maybe to $10?)!! -- Ignore unavailable to you. Want to Upgrade?


To: Elroy who wrote (88)6/8/2024 9:34:32 AM
From: Elroy  Read Replies (1) | Respond to of 103
 
Well, my take on NGL after the report is ......

The report was pretty disappointing. A big miss on EBITDA in March Q. Fortunately, the key segment (Water) did well and forward guidance for water is about in line. Water provided ~83% of last year's EBITDA, and it should provide a similar percentage next year (which implies the other two segments bounce back from the bad March Q).

They have a pipeline (Grand Mesa) which is perpetually under capacity. They think it may get more useage this year, but I think they've thought that for a long time, so we'll see. They said something about it's volumes increasing by 50%, but I don't think that's signed contracts, it's perhaps just talk.

The other business (propane/butane wholesale) is lumpy, and they say they are exploring selling it or parts of it. They've been able to get good multiples of EBITDA in sales. This business had $70m EBITDA in a disappointing year last year. If they can get anything close to $700m cash, that would be amazing I think. It would allow them to repurchase all their preferreds ($930m) using sales proceeds and the revolver. Hopefully they unload this business this year.

The other interesting bit of the NGL story now is they're spending $125m on a water pipeline expansion project (Lex 2). It coimpletes in October and begins producing revenue immediately as they have a signed long term customer with minimum commitment. That project is 60% of the $210m Cap Ex they'll spend this year. This is interesting, because if it completes on time, it means from October 2024 their annual Cap Ex run rate is about $100m rather than this year's $210m, and they will have a step up in EBITDA as the Lex 2 begins contributing. That combo of higher EBITDA and lower Cap Ex sounds like a great recipe for a common unit distribution. It sounds like more than $125m per year free cash flow from October on compared to Jan to Sep 2024. It's plenty to implement a $1.00 per unit distribution.

NGL has about $930pm preferred stock, which all pay about 13% from this summer.

So......if they can sell the Butane/Propane business for anything close to $700m, they could use the line of credit and the proceeds to repurchase the high yielding preferreds, and then in October when the Lex 2 comes online, they'll have reduced Cap Ex costs since the Lex 2 project isn't consuming Cap Ex cash any more, they'll have a step up in Ebitda due to Lex 2 going into service, but ..... they'll have about $80m reduced EBITDA due to selling the propane/butane biz. The preferreds now are consuming $110m in annual dividends, so.......selling propane/butane and buying all the preferreds actually IMPROVES cash flows.

I think Lex 2 is a given, just complete the project. The big question is whether they can get an attractive price for the propane/butane business. If so, NGL should look pretty good by Q4 2024, and implement a common distribution in 2025.

So conclusion = March 2024 results were poor due to weakness in the two less important divisions, but the forward outlook is, well, potentially awesome.

I think a year from now NGL is likely $8.00 or so, and it could be higher if the distribution number is higher.