Author Topic: TOO - Teekay Offshore Partners L.P.  (Read 32750 times)

walkie518

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #180 on: April 19, 2019, 11:30:31 AM »
It's a little silly to value TOO using adjusted EBITDA figures. It's much safer to value it on a cash basis, assuming a 10 year deleveraging, and going that route, than simply placing an adjusted "multiple" on it.

Adjusted EBITDA does not give a clear picture of TOO's financial flexibility, underlying business costs, and prior, let alone current, capital allocation decisions.

TOO looks cheap on an adjusted EBITDA basis no matter how you slice it. Just look at what EBITDA itself excludes: Dry dock expense, amortization of in-process revenue contracts, and interest expense. All recurring cash outflows, to the tune of $240 million (via cash basis) in 18. No sign of dropping for several years either, but it is acknowledged interest will eventually drop if they successfully pay down debt.

From that point of view, one just has to determine if the underlying assets provide enough punch to get through the next 5+ without sinking. Last year, they had $80 million in FCF. This includes net capex. It also includes an adverse working capital impact of probably $50-80 million that may reverse in 19 or 20. At $80 million, you have a FCF yield of 15%. Improve FCF by $50 million, you have a 25% yield, even after assuming all warrants exercised.

Seems like fair value around $3.25 or so a share. Also seems like a fair margin of safety.

There is no doubt that it is cheap at price of $1.16, even based on current FCF that has been greatly masked by the abnormally high CAPEX for now. But it is still unclear to me what is Brookfield's plan to get the price to $4+. If you view this as a "mid-stream" business, who would pay 9X EV/EBITDA for a MLP if it does not pay out a distribution? However, "increasing distribution" has never appeared in the business strategy in any presentation from them, since Brookfield's take over. What is their end-game?

Speaking from my experience being involved in another Brookfield led restructuring called TerraForm Power.  TERP was a YieldCo of SunEdison which went bankrupt.  My thesis was that the PPA of TERP will stay in place.  I made some projections on what I think the "turned on" distributions for TERP will be once Brookfield is done restructuring them.  My estimate was low to mid teens.  It wind up being high single digits.  The market didn't react to it for a very long time.  They turned the distribution back on and paid dividends for a whole year and the market didn't blink an eye.  Finally, TERP increased its distribution.  It was the increase that did it for the market and TERP finally trades at around $14.  I got a bit tired of following the company for 2-3 years and swapped into some yield plays that was paying over 10% during Q4.  I guess my takeaway from all of this is that it may help to trade around the stock a bit.  We know the long term trajectory is likely upwards.  But from time to time, it could trade below $1.10 and then it would spike to $1.78.  We've been pretty good at picking up shares in the $1.10 to $1.20 range.  But haven't really sold any when it spiked earlier.  I get the sense that the full distribution "turn on" and "increases" won't happen for another 1-2 years as they pay for the shuttle tankers.  Frankly, it simply hasn't deleverage enough yet.  I think if you trade around 20-40% price swings, you can actually do okay.  Maybe, I should have kept those thoughts to myself.  But what's a community for?
markets are public auctions...makes perfect sense

Brookfield, however, paid a lot more than $1.10? 

If you believe in what they're doing, maybe you pick up a few extra bucks trading the stock minus the friction, but if BAM turns the company into a $20 stock, the after-tax difference might prefer buy and hold...

Walkie,

I like CoF because people are frank and blunt and with the exception of talking to ta few standouts like Eric and Packer, people just say what's on their mind to each other.  So thank you for your bluntness. 

1) I do own lots of stuff that I have no plan to sell and yes I do have a 20 year position in my portfolio
2) If you think TOO will be worth $20 in any time frame, I have a bridge...
3) Brookfield is good, but they are not God.  Turnarounds takes time and sometimes 3-5 years rather than the 1-2 years that people think.
4) They will still need to pay for the shuttle tanker delivery and deleverage the balance sheet simultaneously
5) I am not as bullish as others on what FCF because of 6)

6) These assets are like RVs with a long term leases on them and not like a site build house where you own the land and the land appreciates in value.  So every dollar of lease payment that you get you have to pay some of that to the bank as interest to service the debt, but you better pay off some of that amortization as well.  Because if you don't, you will be stuck with fully depreciated RVs in year 20s that you can only salvage for 10% of the original purchase price.  What is the correct amount of debt amortization is still something that I am trying to pinpoint and nail down.  Like I said, this is one of the most fascinating puzzle and yet one of the most frustrating company to analyze.  Until I have figured that out and gain full confidence, I am not going to wait around till $20 a share.  But I know that at $1.10, it is priced as if the company will go under.   

7) Let's try to "crowd solve" the unit economic on these shuttle tankers.
8) Seth, please feel free to tell us we are idiots and chime in
9) Walkie, can you walk me through your $20 math?  I have heard $4, $6, and maybe even $10. But never $20.  I am genuinely curious.
$20 is a pie-in-the-sky figure, but one could study GrafTech as a similar approach to value creation...should Brookfield be able to buy control like this and achieve similar outcomes each time, regardless of where the market prices day-to-day, Brookfield wins

And yes, Brookfield is not God, but the firm's reach is palpable and its affiliates are collaborative. 

Brookfield can engineer cash flow for a company like Teekay b/c of control of other portfolio companies--this is the value Brookfield can bring as a large operating investor that passive investors cannot bring to their investments. 


Deepdive

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #181 on: April 20, 2019, 10:32:52 PM »
It's a little silly to value TOO using adjusted EBITDA figures. It's much safer to value it on a cash basis, assuming a 10 year deleveraging, and going that route, than simply placing an adjusted "multiple" on it.

Adjusted EBITDA does not give a clear picture of TOO's financial flexibility, underlying business costs, and prior, let alone current, capital allocation decisions.

TOO looks cheap on an adjusted EBITDA basis no matter how you slice it. Just look at what EBITDA itself excludes: Dry dock expense, amortization of in-process revenue contracts, and interest expense. All recurring cash outflows, to the tune of $240 million (via cash basis) in 18. No sign of dropping for several years either, but it is acknowledged interest will eventually drop if they successfully pay down debt.

From that point of view, one just has to determine if the underlying assets provide enough punch to get through the next 5+ without sinking. Last year, they had $80 million in FCF. This includes net capex. It also includes an adverse working capital impact of probably $50-80 million that may reverse in 19 or 20. At $80 million, you have a FCF yield of 15%. Improve FCF by $50 million, you have a 25% yield, even after assuming all warrants exercised.

Seems like fair value around $3.25 or so a share. Also seems like a fair margin of safety.

There is no doubt that it is cheap at price of $1.16, even based on current FCF that has been greatly masked by the abnormally high CAPEX for now. But it is still unclear to me what is Brookfield's plan to get the price to $4+. If you view this as a "mid-stream" business, who would pay 9X EV/EBITDA for a MLP if it does not pay out a distribution? However, "increasing distribution" has never appeared in the business strategy in any presentation from them, since Brookfield's take over. What is their end-game?

Speaking from my experience being involved in another Brookfield led restructuring called TerraForm Power.  TERP was a YieldCo of SunEdison which went bankrupt.  My thesis was that the PPA of TERP will stay in place.  I made some projections on what I think the "turned on" distributions for TERP will be once Brookfield is done restructuring them.  My estimate was low to mid teens.  It wind up being high single digits.  The market didn't react to it for a very long time.  They turned the distribution back on and paid dividends for a whole year and the market didn't blink an eye.  Finally, TERP increased its distribution.  It was the increase that did it for the market and TERP finally trades at around $14.  I got a bit tired of following the company for 2-3 years and swapped into some yield plays that was paying over 10% during Q4.  I guess my takeaway from all of this is that it may help to trade around the stock a bit.  We know the long term trajectory is likely upwards.  But from time to time, it could trade below $1.10 and then it would spike to $1.78.  We've been pretty good at picking up shares in the $1.10 to $1.20 range.  But haven't really sold any when it spiked earlier.  I get the sense that the full distribution "turn on" and "increases" won't happen for another 1-2 years as they pay for the shuttle tankers.  Frankly, it simply hasn't deleverage enough yet.  I think if you trade around 20-40% price swings, you can actually do okay.  Maybe, I should have kept those thoughts to myself.  But what's a community for?
markets are public auctions...makes perfect sense

Brookfield, however, paid a lot more than $1.10? 

If you believe in what they're doing, maybe you pick up a few extra bucks trading the stock minus the friction, but if BAM turns the company into a $20 stock, the after-tax difference might prefer buy and hold...

Walkie,

I like CoF because people are frank and blunt and with the exception of talking to ta few standouts like Eric and Packer, people just say what's on their mind to each other.  So thank you for your bluntness. 

1) I do own lots of stuff that I have no plan to sell and yes I do have a 20 year position in my portfolio
2) If you think TOO will be worth $20 in any time frame, I have a bridge...
3) Brookfield is good, but they are not God.  Turnarounds takes time and sometimes 3-5 years rather than the 1-2 years that people think.
4) They will still need to pay for the shuttle tanker delivery and deleverage the balance sheet simultaneously
5) I am not as bullish as others on what FCF because of 6)

6) These assets are like RVs with a long term leases on them and not like a site build house where you own the land and the land appreciates in value.  So every dollar of lease payment that you get you have to pay some of that to the bank as interest to service the debt, but you better pay off some of that amortization as well.  Because if you don't, you will be stuck with fully depreciated RVs in year 20s that you can only salvage for 10% of the original purchase price.  What is the correct amount of debt amortization is still something that I am trying to pinpoint and nail down.  Like I said, this is one of the most fascinating puzzle and yet one of the most frustrating company to analyze.  Until I have figured that out and gain full confidence, I am not going to wait around till $20 a share.  But I know that at $1.10, it is priced as if the company will go under.   

7) Let's try to "crowd solve" the unit economic on these shuttle tankers.
8) Seth, please feel free to tell us we are idiots and chime in
9) Walkie, can you walk me through your $20 math?  I have heard $4, $6, and maybe even $10. But never $20.  I am genuinely curious.
$20 is a pie-in-the-sky figure, but one could study GrafTech as a similar approach to value creation...should Brookfield be able to buy control like this and achieve similar outcomes each time, regardless of where the market prices day-to-day, Brookfield wins

And yes, Brookfield is not God, but the firm's reach is palpable and its affiliates are collaborative. 

Brookfield can engineer cash flow for a company like Teekay b/c of control of other portfolio companies--this is the value Brookfield can bring as a large operating investor that passive investors cannot bring to their investments.

$20 a share would imply an $8 billion market cap company.  I know you said pie-in-the-sky, but how?  Everything you said is qualitative, care to give some quantitative backing? 

walkie518

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #182 on: Today at 08:38:57 AM »
It's a little silly to value TOO using adjusted EBITDA figures. It's much safer to value it on a cash basis, assuming a 10 year deleveraging, and going that route, than simply placing an adjusted "multiple" on it.

Adjusted EBITDA does not give a clear picture of TOO's financial flexibility, underlying business costs, and prior, let alone current, capital allocation decisions.

TOO looks cheap on an adjusted EBITDA basis no matter how you slice it. Just look at what EBITDA itself excludes: Dry dock expense, amortization of in-process revenue contracts, and interest expense. All recurring cash outflows, to the tune of $240 million (via cash basis) in 18. No sign of dropping for several years either, but it is acknowledged interest will eventually drop if they successfully pay down debt.

From that point of view, one just has to determine if the underlying assets provide enough punch to get through the next 5+ without sinking. Last year, they had $80 million in FCF. This includes net capex. It also includes an adverse working capital impact of probably $50-80 million that may reverse in 19 or 20. At $80 million, you have a FCF yield of 15%. Improve FCF by $50 million, you have a 25% yield, even after assuming all warrants exercised.

Seems like fair value around $3.25 or so a share. Also seems like a fair margin of safety.

There is no doubt that it is cheap at price of $1.16, even based on current FCF that has been greatly masked by the abnormally high CAPEX for now. But it is still unclear to me what is Brookfield's plan to get the price to $4+. If you view this as a "mid-stream" business, who would pay 9X EV/EBITDA for a MLP if it does not pay out a distribution? However, "increasing distribution" has never appeared in the business strategy in any presentation from them, since Brookfield's take over. What is their end-game?

Speaking from my experience being involved in another Brookfield led restructuring called TerraForm Power.  TERP was a YieldCo of SunEdison which went bankrupt.  My thesis was that the PPA of TERP will stay in place.  I made some projections on what I think the "turned on" distributions for TERP will be once Brookfield is done restructuring them.  My estimate was low to mid teens.  It wind up being high single digits.  The market didn't react to it for a very long time.  They turned the distribution back on and paid dividends for a whole year and the market didn't blink an eye.  Finally, TERP increased its distribution.  It was the increase that did it for the market and TERP finally trades at around $14.  I got a bit tired of following the company for 2-3 years and swapped into some yield plays that was paying over 10% during Q4.  I guess my takeaway from all of this is that it may help to trade around the stock a bit.  We know the long term trajectory is likely upwards.  But from time to time, it could trade below $1.10 and then it would spike to $1.78.  We've been pretty good at picking up shares in the $1.10 to $1.20 range.  But haven't really sold any when it spiked earlier.  I get the sense that the full distribution "turn on" and "increases" won't happen for another 1-2 years as they pay for the shuttle tankers.  Frankly, it simply hasn't deleverage enough yet.  I think if you trade around 20-40% price swings, you can actually do okay.  Maybe, I should have kept those thoughts to myself.  But what's a community for?
markets are public auctions...makes perfect sense

Brookfield, however, paid a lot more than $1.10? 

If you believe in what they're doing, maybe you pick up a few extra bucks trading the stock minus the friction, but if BAM turns the company into a $20 stock, the after-tax difference might prefer buy and hold...

Walkie,

I like CoF because people are frank and blunt and with the exception of talking to ta few standouts like Eric and Packer, people just say what's on their mind to each other.  So thank you for your bluntness. 

1) I do own lots of stuff that I have no plan to sell and yes I do have a 20 year position in my portfolio
2) If you think TOO will be worth $20 in any time frame, I have a bridge...
3) Brookfield is good, but they are not God.  Turnarounds takes time and sometimes 3-5 years rather than the 1-2 years that people think.
4) They will still need to pay for the shuttle tanker delivery and deleverage the balance sheet simultaneously
5) I am not as bullish as others on what FCF because of 6)

6) These assets are like RVs with a long term leases on them and not like a site build house where you own the land and the land appreciates in value.  So every dollar of lease payment that you get you have to pay some of that to the bank as interest to service the debt, but you better pay off some of that amortization as well.  Because if you don't, you will be stuck with fully depreciated RVs in year 20s that you can only salvage for 10% of the original purchase price.  What is the correct amount of debt amortization is still something that I am trying to pinpoint and nail down.  Like I said, this is one of the most fascinating puzzle and yet one of the most frustrating company to analyze.  Until I have figured that out and gain full confidence, I am not going to wait around till $20 a share.  But I know that at $1.10, it is priced as if the company will go under.   

7) Let's try to "crowd solve" the unit economic on these shuttle tankers.
8) Seth, please feel free to tell us we are idiots and chime in
9) Walkie, can you walk me through your $20 math?  I have heard $4, $6, and maybe even $10. But never $20.  I am genuinely curious.
$20 is a pie-in-the-sky figure, but one could study GrafTech as a similar approach to value creation...should Brookfield be able to buy control like this and achieve similar outcomes each time, regardless of where the market prices day-to-day, Brookfield wins

And yes, Brookfield is not God, but the firm's reach is palpable and its affiliates are collaborative. 

Brookfield can engineer cash flow for a company like Teekay b/c of control of other portfolio companies--this is the value Brookfield can bring as a large operating investor that passive investors cannot bring to their investments.

$20 a share would imply an $8 billion market cap company.  I know you said pie-in-the-sky, but how?  Everything you said is qualitative, care to give some quantitative backing?

a quantitative approach might not matter when the stock trades as if the company is teetering on bankruptcy, there should be material upside should TOO not file let alone the upside that $20/sh would imply

that said, the exercise doesn't really hurt though is more speculative than underwriting the credit risk, which alone might show a reasonable investment?

say we trust all of the figures presented by mgmt and 2018 adj ebitda makes sense excluding settlement ($692m)

say we believe that the current growth initiatives do what they say they will do (increase adj ebitda by $220m)

say Brookfield finds a way to increase EBITDA by 5% per year for 5 years (27% higher ebitda y5) using its affiliates to spur demand, say the affiliates then sell the contracting assets, they would do so with long-term contracts...and if TOO does what they say and keeps price in line, there will be deals behind the those...

we might see a business generating adj ebitda of $1.16B where Brookfield's buy-in was not so far? 

the path to ig credit is a good one for this business...it's fragmented and many players are highly levered, someone will be there to pick up the pieces and it's likely to be the ones with capital beyond its balance sheets, what happens after consolidation to three or four players? 

highly speculative thinking...but 10x adj EBITDA isn't nuts for a stronger balance sheet and operating statement linked to long-term contracts? 

BG2008

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #183 on: Today at 09:18:19 AM »
It's a little silly to value TOO using adjusted EBITDA figures. It's much safer to value it on a cash basis, assuming a 10 year deleveraging, and going that route, than simply placing an adjusted "multiple" on it.

Adjusted EBITDA does not give a clear picture of TOO's financial flexibility, underlying business costs, and prior, let alone current, capital allocation decisions.

TOO looks cheap on an adjusted EBITDA basis no matter how you slice it. Just look at what EBITDA itself excludes: Dry dock expense, amortization of in-process revenue contracts, and interest expense. All recurring cash outflows, to the tune of $240 million (via cash basis) in 18. No sign of dropping for several years either, but it is acknowledged interest will eventually drop if they successfully pay down debt.

From that point of view, one just has to determine if the underlying assets provide enough punch to get through the next 5+ without sinking. Last year, they had $80 million in FCF. This includes net capex. It also includes an adverse working capital impact of probably $50-80 million that may reverse in 19 or 20. At $80 million, you have a FCF yield of 15%. Improve FCF by $50 million, you have a 25% yield, even after assuming all warrants exercised.

Seems like fair value around $3.25 or so a share. Also seems like a fair margin of safety.

There is no doubt that it is cheap at price of $1.16, even based on current FCF that has been greatly masked by the abnormally high CAPEX for now. But it is still unclear to me what is Brookfield's plan to get the price to $4+. If you view this as a "mid-stream" business, who would pay 9X EV/EBITDA for a MLP if it does not pay out a distribution? However, "increasing distribution" has never appeared in the business strategy in any presentation from them, since Brookfield's take over. What is their end-game?

Speaking from my experience being involved in another Brookfield led restructuring called TerraForm Power.  TERP was a YieldCo of SunEdison which went bankrupt.  My thesis was that the PPA of TERP will stay in place.  I made some projections on what I think the "turned on" distributions for TERP will be once Brookfield is done restructuring them.  My estimate was low to mid teens.  It wind up being high single digits.  The market didn't react to it for a very long time.  They turned the distribution back on and paid dividends for a whole year and the market didn't blink an eye.  Finally, TERP increased its distribution.  It was the increase that did it for the market and TERP finally trades at around $14.  I got a bit tired of following the company for 2-3 years and swapped into some yield plays that was paying over 10% during Q4.  I guess my takeaway from all of this is that it may help to trade around the stock a bit.  We know the long term trajectory is likely upwards.  But from time to time, it could trade below $1.10 and then it would spike to $1.78.  We've been pretty good at picking up shares in the $1.10 to $1.20 range.  But haven't really sold any when it spiked earlier.  I get the sense that the full distribution "turn on" and "increases" won't happen for another 1-2 years as they pay for the shuttle tankers.  Frankly, it simply hasn't deleverage enough yet.  I think if you trade around 20-40% price swings, you can actually do okay.  Maybe, I should have kept those thoughts to myself.  But what's a community for?
markets are public auctions...makes perfect sense

Brookfield, however, paid a lot more than $1.10? 

If you believe in what they're doing, maybe you pick up a few extra bucks trading the stock minus the friction, but if BAM turns the company into a $20 stock, the after-tax difference might prefer buy and hold...

Walkie,

I like CoF because people are frank and blunt and with the exception of talking to ta few standouts like Eric and Packer, people just say what's on their mind to each other.  So thank you for your bluntness. 

1) I do own lots of stuff that I have no plan to sell and yes I do have a 20 year position in my portfolio
2) If you think TOO will be worth $20 in any time frame, I have a bridge...
3) Brookfield is good, but they are not God.  Turnarounds takes time and sometimes 3-5 years rather than the 1-2 years that people think.
4) They will still need to pay for the shuttle tanker delivery and deleverage the balance sheet simultaneously
5) I am not as bullish as others on what FCF because of 6)

6) These assets are like RVs with a long term leases on them and not like a site build house where you own the land and the land appreciates in value.  So every dollar of lease payment that you get you have to pay some of that to the bank as interest to service the debt, but you better pay off some of that amortization as well.  Because if you don't, you will be stuck with fully depreciated RVs in year 20s that you can only salvage for 10% of the original purchase price.  What is the correct amount of debt amortization is still something that I am trying to pinpoint and nail down.  Like I said, this is one of the most fascinating puzzle and yet one of the most frustrating company to analyze.  Until I have figured that out and gain full confidence, I am not going to wait around till $20 a share.  But I know that at $1.10, it is priced as if the company will go under.   

7) Let's try to "crowd solve" the unit economic on these shuttle tankers.
8) Seth, please feel free to tell us we are idiots and chime in
9) Walkie, can you walk me through your $20 math?  I have heard $4, $6, and maybe even $10. But never $20.  I am genuinely curious.
$20 is a pie-in-the-sky figure, but one could study GrafTech as a similar approach to value creation...should Brookfield be able to buy control like this and achieve similar outcomes each time, regardless of where the market prices day-to-day, Brookfield wins

And yes, Brookfield is not God, but the firm's reach is palpable and its affiliates are collaborative. 

Brookfield can engineer cash flow for a company like Teekay b/c of control of other portfolio companies--this is the value Brookfield can bring as a large operating investor that passive investors cannot bring to their investments.

$20 a share would imply an $8 billion market cap company.  I know you said pie-in-the-sky, but how?  Everything you said is qualitative, care to give some quantitative backing?

a quantitative approach might not matter when the stock trades as if the company is teetering on bankruptcy, there should be material upside should TOO not file let alone the upside that $20/sh would imply

that said, the exercise doesn't really hurt though is more speculative than underwriting the credit risk, which alone might show a reasonable investment?

say we trust all of the figures presented by mgmt and 2018 adj ebitda makes sense excluding settlement ($692m)

say we believe that the current growth initiatives do what they say they will do (increase adj ebitda by $220m)

say Brookfield finds a way to increase EBITDA by 5% per year for 5 years (27% higher ebitda y5) using its affiliates to spur demand, say the affiliates then sell the contracting assets, they would do so with long-term contracts...and if TOO does what they say and keeps price in line, there will be deals behind the those...

we might see a business generating adj ebitda of $1.16B where Brookfield's buy-in was not so far? 

the path to ig credit is a good one for this business...it's fragmented and many players are highly levered, someone will be there to pick up the pieces and it's likely to be the ones with capital beyond its balance sheets, what happens after consolidation to three or four players? 

highly speculative thinking...but 10x adj EBITDA isn't nuts for a stronger balance sheet and operating statement linked to long-term contracts?

Walkie,

I can think of a few issues with your assumptions

I stick with my GoodCo and BadCo analysis.  People can say whatever they want about whether the FPSO is GoodCo or Badco.  It's kind of like defining "what is pornography?".  I know it when I see.  What's so critical in heavy equipment investing is how much of the assets sits around and not earn a return.  From about a decade of watching from the sidelines of TransOcean, Ensign, Pride, etc.  The issue is that when there is a chance for assets to sit around and potentially be stacked when there is volatility, it's simply not a good business.  Because when there is demand, you can't get dayrates anywhere close to the previous peak.  The offshore heavy equipment business is fraught with danger. 

So, you're going off the combine EBITDA of both FPSO and shuttle tanker and just adding in 5% growth a year and etc.  The reality is that the FPSO will never get a 10x EBITDA multiple.  TOO is not investing in FPSOs.  So those are melting ice cube EBITDAs.  Packer has found a few comps and they trade at 5-6x EBITDA.  I have issues with people slapping a 10x EBITDA on the combinedco.  People point to Knop as a comp.  Well pay attention to the composition of knop offshore.  They literally sign a long term contract and then drop it down to Knop. So every asset has a long term contract and the fleet is very young.  You can't compare a 11 year old fleet with a 3 year old avg age fleet with long term contracts.   They are apples to oranges.  The other problem I have with your $20 assumption is that the shuttle tanker market is attractive precisely because it is so small.  Worldwide there is less than 100 ships. There is a real limit on how much capital one can put into this market.  Let's assume that TOO controls 50% of all ships.  At $135mm per ship, it will be $6.75 bn of gross capital. The assets earn 8% real and about 12% EBITDA yield.  Let's assume that all shuttle tankers are brand new somehow and there is only 30% debt on it.  This will be merely $810 mm of EBITDA.  Put a 10x EBITDA on this crazy awesome number because TOO controls half of the entire market.  This is still only a $15 stock.  I believe that at a certain stock price, Brookfield also takes a cut.  I keep struggling to get to $20. 

Speaking of which, the stock is at $1.39 today.  I'm not an advocate of day trading.  But some stocks are more volatile than others.  It's not a bad strategy to trade a bit and "KEEP" all of the shares that you pick up over time.  That's a fun way to accumulate more shares overtime.   

 

heth247

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #184 on: Today at 10:03:46 AM »

say we trust all of the figures presented by mgmt and 2018 adj ebitda makes sense excluding settlement ($692m)

say we believe that the current growth initiatives do what they say they will do (increase adj ebitda by $220m)


What new "current growth initiatives" were you talking about? My understanding is that the $200M growth initiatives on FPSO + FSO + Canadian Shuttle tanker were already done and largely reflected in the $692M EBITDA, except for $25M step up on one of the FPSO later this year.  The 6 new shuttle tanker being built now is more like a replacement CAPEX (although there is some inflation price increase built-in per Seth). So I don't think they have significant growth EBITDA coming in except for recontracting of Varg, Arendle, Ostras, and more utilization of the towing fleet.



« Last Edit: Today at 10:09:11 AM by heth247 »

walkie518

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #185 on: Today at 10:26:46 AM »
It's a little silly to value TOO using adjusted EBITDA figures. It's much safer to value it on a cash basis, assuming a 10 year deleveraging, and going that route, than simply placing an adjusted "multiple" on it.

Adjusted EBITDA does not give a clear picture of TOO's financial flexibility, underlying business costs, and prior, let alone current, capital allocation decisions.

TOO looks cheap on an adjusted EBITDA basis no matter how you slice it. Just look at what EBITDA itself excludes: Dry dock expense, amortization of in-process revenue contracts, and interest expense. All recurring cash outflows, to the tune of $240 million (via cash basis) in 18. No sign of dropping for several years either, but it is acknowledged interest will eventually drop if they successfully pay down debt.

From that point of view, one just has to determine if the underlying assets provide enough punch to get through the next 5+ without sinking. Last year, they had $80 million in FCF. This includes net capex. It also includes an adverse working capital impact of probably $50-80 million that may reverse in 19 or 20. At $80 million, you have a FCF yield of 15%. Improve FCF by $50 million, you have a 25% yield, even after assuming all warrants exercised.

Seems like fair value around $3.25 or so a share. Also seems like a fair margin of safety.

There is no doubt that it is cheap at price of $1.16, even based on current FCF that has been greatly masked by the abnormally high CAPEX for now. But it is still unclear to me what is Brookfield's plan to get the price to $4+. If you view this as a "mid-stream" business, who would pay 9X EV/EBITDA for a MLP if it does not pay out a distribution? However, "increasing distribution" has never appeared in the business strategy in any presentation from them, since Brookfield's take over. What is their end-game?

Speaking from my experience being involved in another Brookfield led restructuring called TerraForm Power.  TERP was a YieldCo of SunEdison which went bankrupt.  My thesis was that the PPA of TERP will stay in place.  I made some projections on what I think the "turned on" distributions for TERP will be once Brookfield is done restructuring them.  My estimate was low to mid teens.  It wind up being high single digits.  The market didn't react to it for a very long time.  They turned the distribution back on and paid dividends for a whole year and the market didn't blink an eye.  Finally, TERP increased its distribution.  It was the increase that did it for the market and TERP finally trades at around $14.  I got a bit tired of following the company for 2-3 years and swapped into some yield plays that was paying over 10% during Q4.  I guess my takeaway from all of this is that it may help to trade around the stock a bit.  We know the long term trajectory is likely upwards.  But from time to time, it could trade below $1.10 and then it would spike to $1.78.  We've been pretty good at picking up shares in the $1.10 to $1.20 range.  But haven't really sold any when it spiked earlier.  I get the sense that the full distribution "turn on" and "increases" won't happen for another 1-2 years as they pay for the shuttle tankers.  Frankly, it simply hasn't deleverage enough yet.  I think if you trade around 20-40% price swings, you can actually do okay.  Maybe, I should have kept those thoughts to myself.  But what's a community for?
markets are public auctions...makes perfect sense

Brookfield, however, paid a lot more than $1.10? 

If you believe in what they're doing, maybe you pick up a few extra bucks trading the stock minus the friction, but if BAM turns the company into a $20 stock, the after-tax difference might prefer buy and hold...

Walkie,

I like CoF because people are frank and blunt and with the exception of talking to ta few standouts like Eric and Packer, people just say what's on their mind to each other.  So thank you for your bluntness. 

1) I do own lots of stuff that I have no plan to sell and yes I do have a 20 year position in my portfolio
2) If you think TOO will be worth $20 in any time frame, I have a bridge...
3) Brookfield is good, but they are not God.  Turnarounds takes time and sometimes 3-5 years rather than the 1-2 years that people think.
4) They will still need to pay for the shuttle tanker delivery and deleverage the balance sheet simultaneously
5) I am not as bullish as others on what FCF because of 6)

6) These assets are like RVs with a long term leases on them and not like a site build house where you own the land and the land appreciates in value.  So every dollar of lease payment that you get you have to pay some of that to the bank as interest to service the debt, but you better pay off some of that amortization as well.  Because if you don't, you will be stuck with fully depreciated RVs in year 20s that you can only salvage for 10% of the original purchase price.  What is the correct amount of debt amortization is still something that I am trying to pinpoint and nail down.  Like I said, this is one of the most fascinating puzzle and yet one of the most frustrating company to analyze.  Until I have figured that out and gain full confidence, I am not going to wait around till $20 a share.  But I know that at $1.10, it is priced as if the company will go under.   

7) Let's try to "crowd solve" the unit economic on these shuttle tankers.
8) Seth, please feel free to tell us we are idiots and chime in
9) Walkie, can you walk me through your $20 math?  I have heard $4, $6, and maybe even $10. But never $20.  I am genuinely curious.
$20 is a pie-in-the-sky figure, but one could study GrafTech as a similar approach to value creation...should Brookfield be able to buy control like this and achieve similar outcomes each time, regardless of where the market prices day-to-day, Brookfield wins

And yes, Brookfield is not God, but the firm's reach is palpable and its affiliates are collaborative. 

Brookfield can engineer cash flow for a company like Teekay b/c of control of other portfolio companies--this is the value Brookfield can bring as a large operating investor that passive investors cannot bring to their investments.

$20 a share would imply an $8 billion market cap company.  I know you said pie-in-the-sky, but how?  Everything you said is qualitative, care to give some quantitative backing?

a quantitative approach might not matter when the stock trades as if the company is teetering on bankruptcy, there should be material upside should TOO not file let alone the upside that $20/sh would imply

that said, the exercise doesn't really hurt though is more speculative than underwriting the credit risk, which alone might show a reasonable investment?

say we trust all of the figures presented by mgmt and 2018 adj ebitda makes sense excluding settlement ($692m)

say we believe that the current growth initiatives do what they say they will do (increase adj ebitda by $220m)

say Brookfield finds a way to increase EBITDA by 5% per year for 5 years (27% higher ebitda y5) using its affiliates to spur demand, say the affiliates then sell the contracting assets, they would do so with long-term contracts...and if TOO does what they say and keeps price in line, there will be deals behind the those...

we might see a business generating adj ebitda of $1.16B where Brookfield's buy-in was not so far? 

the path to ig credit is a good one for this business...it's fragmented and many players are highly levered, someone will be there to pick up the pieces and it's likely to be the ones with capital beyond its balance sheets, what happens after consolidation to three or four players? 

highly speculative thinking...but 10x adj EBITDA isn't nuts for a stronger balance sheet and operating statement linked to long-term contracts?

Walkie,

I can think of a few issues with your assumptions

I stick with my GoodCo and BadCo analysis.  People can say whatever they want about whether the FPSO is GoodCo or Badco.  It's kind of like defining "what is pornography?".  I know it when I see.  What's so critical in heavy equipment investing is how much of the assets sits around and not earn a return.  From about a decade of watching from the sidelines of TransOcean, Ensign, Pride, etc.  The issue is that when there is a chance for assets to sit around and potentially be stacked when there is volatility, it's simply not a good business.  Because when there is demand, you can't get dayrates anywhere close to the previous peak.  The offshore heavy equipment business is fraught with danger. 

So, you're going off the combine EBITDA of both FPSO and shuttle tanker and just adding in 5% growth a year and etc.  The reality is that the FPSO will never get a 10x EBITDA multiple.  TOO is not investing in FPSOs.  So those are melting ice cube EBITDAs.  Packer has found a few comps and they trade at 5-6x EBITDA.  I have issues with people slapping a 10x EBITDA on the combinedco.  People point to Knop as a comp.  Well pay attention to the composition of knop offshore.  They literally sign a long term contract and then drop it down to Knop. So every asset has a long term contract and the fleet is very young.  You can't compare a 11 year old fleet with a 3 year old avg age fleet with long term contracts.   They are apples to oranges.  The other problem I have with your $20 assumption is that the shuttle tanker market is attractive precisely because it is so small.  Worldwide there is less than 100 ships. There is a real limit on how much capital one can put into this market.  Let's assume that TOO controls 50% of all ships.  At $135mm per ship, it will be $6.75 bn of gross capital. The assets earn 8% real and about 12% EBITDA yield.  Let's assume that all shuttle tankers are brand new somehow and there is only 30% debt on it.  This will be merely $810 mm of EBITDA.  Put a 10x EBITDA on this crazy awesome number because TOO controls half of the entire market.  This is still only a $15 stock.  I believe that at a certain stock price, Brookfield also takes a cut.  I keep struggling to get to $20. 

Speaking of which, the stock is at $1.39 today.  I'm not an advocate of day trading.  But some stocks are more volatile than others.  It's not a bad strategy to trade a bit and "KEEP" all of the shares that you pick up over time.  That's a fun way to accumulate more shares overtime.   

 

I don't disagree...calculating for tax and trading friction, I would trade around the position too

as far as valuation, there are ways for companies to compound at higher rates than expected with the right manager and near unlimited cheap capital, both of which BAM might bring to the table