NSH - NuStar GP Holdings, LLC

[Gopinath]

Anyone own this? This is intriguing as William E. Greehey has been buying regularly and owns about 20% of the company!  I would like to hear if there are any obvious red flags and economic flaws in the business model.

 

It holds a 2% general partner interest, 12.9% limited partner interest, and 100% of the incentive distribution rights in NuStar Energy L.P. Through NuStar Energy L.P., it has interests in 80 terminal and storage facilities with approximately 93 million barrels of storage capacity; and 8,651 miles of crude oil and refined product pipelines.

 

Mission statement:

 

Our primary objective is to increase per unit distributions to our unitholders by actively supporting NuStar Energy in executing

its business strategy, which includes continued growth through expansion projects and strategic acquisitions. We may facilitate

NuStar Energy’s growth through the use of our capital resources, which could involve capital contributions, loans or other

forms of financial support.

 

Quick look:

 

Market Cap ~ $1B and no debt and no share dilution historically

Dividend yield - 9.2%

All the cash flow is free cash flow as this company has no capex needed properties other than the ownership in NuStar Energy L.P.

 

[Palantir]

Do you understand the GP/LP relationship and what that entails for the GP going forward? AKA the LP has a nearly 10% yield, which makes it impossible to use as acquisition currency, reducing any growth potential.

 

Personally I am more interested in NS.

[Spekulatius]

Do you understand the GP/LP relationship and what that entails for the GP going forward? AKA the LP has a nearly 10% yield, which makes it impossible to use as acquisition currency, reducing any growth potential.

 

Personally I am more interested in NS.

 

The GP is a a leveraged bet on NS and specifically on NS growth and that is where the money is. Any additional unit of NS that they are going to be able to issue will generate IDR's that flow to NSH without NSH having to expend any capital. This makes the GP so profitable if it can grow.

 

While Palantir is correct that it's officiant to issue NS equity at accreditive terms, I think there is a good chance that this will change going forward and then NSH will be able to grow again. The risk is that NS might have to cut it's distribution, which will have a severe impact on NSH (I think NSH will see almost twice the reduction in cash flow percentage wise). Then it get's nasty for the GP...

[shhughes1116]

Do you understand the GP/LP relationship and what that entails for the GP going forward? AKA the LP has a nearly 10% yield, which makes it impossible to use as acquisition currency, reducing any growth potential.

 

Personally I am more interested in NS.

 

The GP is a a leveraged bet on NS and specifically on NS growth and that is where the money is. Any additional unit of NS that they are going to be able to issue will generate IDR's that flow to NSH without NSH having to expend any capital. This makes the GP so profitable if it can grow.

 

While Palantir is correct that it's officiant to issue NS equity at accreditive terms, I think there is a good chance that this will change going forward and then NSH will be able to grow again. The risk is that NS might have to cut it's distribution, which will have a severe impact on NSH (I think NSH will see almost twice the reduction in cash flow percentage wise). Then it get's nasty for the GP...

 

NSH is simply a leveraged play on NS, and there is a lot of history with this one (NS), particularly with sub-1.0x DCF coverage.  Only recently did they manage to consistently deliver >1.0x DCF coverage, which is a reflection of their focus on the midstream space after fooling around in the refining space and asphalt space.  Remember that even within the midstream space, there is a fair amount of differentiation with respect to product movement.  ~55% of their EBITDA is generated from their pipeline segment, which is focused primarily on movement of crude oil and refined products (and to a lesser extent, LPG) from south Texas, Texas panhandle, and the mid-con area.  The remaining ~45% of their EBITDA is generated from liquid storage (i.e. predominantly crude and other refined products).  The storage business should be doing pretty well right now since current NYMEX strip pricing incentivizes folks to store crude oil for future delivery.   

 

I know they forecast growth in DCF over the next two years due to an LPG-transport agreement they signed with some folks in Mexico, and there might be some additional growth after they purchased the remaining 50% of the Linden Terminal from their JV partner.  Last I checked (not that recently) they don't have any debt maturities until 2018, at which point ~$800 million comes due in 2018 and another ~$800 comes due in 2019 (revolver). 

 

The fact that GP (NSH) and LP (NS) are trading at such similar yields leads me to believe that the market doesn't expect any growth to materialize.  As already noted, it could get quite nasty for the GP if the LP's distribution is cut.  So the question to ask is whether growth in terminal storage EBITDA and growth in EBITDA due to LPG transport to Mexico will offset possible volume declines in crude/refined product transport from the mid-con area and/or declines in contracted rates for crude oil movement from the mid-con area. 

 

At this point I have equally-sized positions in Energy Transfer Partners, Energy Transfer Equity, Enterprise Product Partners, and Dominion Midstream.  I think these are better bets than NS/NSH at this point in time.