Author Topic: What are you buying today?  (Read 2206485 times)

Hawks

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Re: What are you buying today?
« Reply #890 on: December 18, 2014, 01:05:04 PM »
FFH below $600.


benchmark

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Re: What are you buying today?
« Reply #891 on: December 21, 2014, 11:14:50 PM »
It is just under 6% of my portfolio.  I generally carry about 20-30 positions, so it is currently weighted a bit on the higher end than normal. 

I guess here is the 10-cent version of my thesis:
1.  85% of revenue is fee-based and generated from compression equipment installed in natural gas midstream applications.  This is pretty sticky, and the company states this in their most recent filings.  Think of it this way, you can't move natural gas through a gathering system or through a large natural gas trunk line (i.e. WMB's Transco pipeline) without compression.  These systems are long lasting, and they need compression for the life of the pipeline.   
2.  15% of revenue is fee-based and generated from gas-lift applications for crude wells.  After a well is drilled and completed, the crude output declines over time.  Producers employ secondary techniques (i.e. gas-lift) and tertiary techniques (water flooding) to improve the output of a well.  Assuming oil prices remain low for an extended period of time, the drilling of new wells will likely slow.  However, producers will desire to maintain/enhance output from existing wells by using secondary and tertiary recovery techniques.  Thus I suspect the use of compression units for gas-lift applications in crude wells will not collapse. 
3.  Their recent quarter was the first where they achieved a 1.0x distribution coverage.  During the previous quarters, the distribution coverage has been under 1.0x, but the controlling shareholders agreed to participate in the DRIP program rather than take distributions. 
4.  Their cash flow during the recent quarter was a substantial improvement from the previous quarter.  However it underestimates their true earning power because a substantial amount of new compression equipment had not been deployed for the entire quarter.
5.  They are ordering ~200k in new compression equipment for 2015, all for midstream applications.  The drop in crude should not impact new natural gas pipelines current under construction, thus the market will likely be able to absorb the new compression units. 
6.  Large, addressable market.  Compression can be provided by the producer or midstream operator.  However, many choose to outsource this work, so there is a large market with more opportunity to expand if desired.     
7.  Although USAC could operate profitably by itself, I suspect it would make a good acquisition target for one of the major oil service companies.     

Do you have a price target?

berkshire101

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Re: What are you buying today?
« Reply #892 on: December 22, 2014, 06:48:59 AM »
Started a position in CNSWF  :)

PatientCheetah

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Re: What are you buying today?
« Reply #893 on: December 22, 2014, 07:28:59 AM »
last bit of ASPS, I don't understand the market reaction :(
risk as little as possible until all the stars have aligned

Longer Term: FB MSFT BABA JD YRD

Hawks

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Re: What are you buying today?
« Reply #894 on: December 22, 2014, 07:54:02 AM »
GSK

shhughes1116

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Re: What are you buying today?
« Reply #895 on: December 22, 2014, 01:04:10 PM »
It is just under 6% of my portfolio.  I generally carry about 20-30 positions, so it is currently weighted a bit on the higher end than normal. 

I guess here is the 10-cent version of my thesis:
1.  85% of revenue is fee-based and generated from compression equipment installed in natural gas midstream applications.  This is pretty sticky, and the company states this in their most recent filings.  Think of it this way, you can't move natural gas through a gathering system or through a large natural gas trunk line (i.e. WMB's Transco pipeline) without compression.  These systems are long lasting, and they need compression for the life of the pipeline.   
2.  15% of revenue is fee-based and generated from gas-lift applications for crude wells.  After a well is drilled and completed, the crude output declines over time.  Producers employ secondary techniques (i.e. gas-lift) and tertiary techniques (water flooding) to improve the output of a well.  Assuming oil prices remain low for an extended period of time, the drilling of new wells will likely slow.  However, producers will desire to maintain/enhance output from existing wells by using secondary and tertiary recovery techniques.  Thus I suspect the use of compression units for gas-lift applications in crude wells will not collapse. 
3.  Their recent quarter was the first where they achieved a 1.0x distribution coverage.  During the previous quarters, the distribution coverage has been under 1.0x, but the controlling shareholders agreed to participate in the DRIP program rather than take distributions. 
4.  Their cash flow during the recent quarter was a substantial improvement from the previous quarter.  However it underestimates their true earning power because a substantial amount of new compression equipment had not been deployed for the entire quarter.
5.  They are ordering ~200k in new compression equipment for 2015, all for midstream applications.  The drop in crude should not impact new natural gas pipelines current under construction, thus the market will likely be able to absorb the new compression units. 
6.  Large, addressable market.  Compression can be provided by the producer or midstream operator.  However, many choose to outsource this work, so there is a large market with more opportunity to expand if desired.     
7.  Although USAC could operate profitably by itself, I suspect it would make a good acquisition target for one of the major oil service companies.     

Do you have a price target?

Yeah.  I suppose there are two ways to value this company.  On an EV/EBITDA basis and on a yield basis.  USAC has equity of $700 million and debt of $500 million, so enterprise value of $1.2 billion.  Their run-rate EBITDA, coming out of the third quarter, was $27 million per quarter.  As I stated in my earlier post, I think this underestimates their earning power because not all of their new compression equipment was installed for the duration of the third quarter.  So let's assume that their quarterly run rate will be ~$30 million exiting the fourth quarter.  Move over, they are adding another 200k HP in compression equipment next year, so about another 20% increase in HP.  So let's assume a quarterly run rate of ~$35 million by q42015.  That yields an EV/EBITDA of 8.5.  I think an oil services firm would be willing to pay 10x given some of the cost synergies they could realize, so maybe $20/share based on annualized earnings from q42015. 

You could also value USAC based on yield.  I see a 10% yield being reasonable given the nature of their business, which also yields a target share price of ~$20 given their current distribution. 



ASTA

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Re: What are you buying today?
« Reply #896 on: December 23, 2014, 07:09:45 AM »
OCN 13.005 3% position

premfan

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Re: What are you buying today?
« Reply #897 on: December 23, 2014, 07:49:16 AM »
I'm buying cash.

AzCactus

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Re: What are you buying today?
« Reply #898 on: December 23, 2014, 08:39:34 AM »

rpadebet

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Re: What are you buying today?
« Reply #899 on: December 23, 2014, 08:47:54 AM »
I'm buying cash.

LOL

How is this value investing. Cash seems expensive @ 1000 PE. 2000 PE if you consider taxes.
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