WPT - World Point Terminals

[kab60]

I came across this Company while reading an old interview with a dude from Trafelet Capital Management LP (http://www.trafelet.com/news/qa-remy-trafelet-gets-back-to-basics-with-new-investment-firm/).

 

Anyway, World Point Terminals (WPT) is an oil storage MLP with a distributions yield around 10 percent. It has been hammered like everything else O&G related but insiders have been buying heavily last couple of months.

 

WPT has 14m barrels of storage with 1.8m added in 2014 and 0.7m added this year. Net income has been trending slighty higher since it was IPO'ed but net income (that's my thesis anyway)  understates earnings power because depreciation is a lot higher than maintenance capex.

 

FY14 net income was 33m compared to OCF of 58m while adjusted EBITDA was 57m versus 46m in 2012.

 

So why the big difference? Depreciation was 20m FY14 while capex was 18m, but according to management only 6m was maintenance capex while the rest was due to the 1.4m expansion (seems to make sense).

 

Company is debt free and has a current EV around 440m with roughly 52m in earnings power (adjusted ebitda minus maintenance capex). That's an earnings yield of 12% which might not be all that spectacular, but the sponsor, privately held Apex, has 7m of oil storage capacity which it has been dropping down to WPT so I expect them to keep growing pretty signicantly. If Apex drops all the capacity down that's 50 percent growth from the 14m barrels of storage today and company also has some options to expand some of its current facilities.

 

I'm really no expert on either MLPs or oil storage companies, but on average their customers relationsships are +8 years (Apex is their biggest customer) with most contracts being extented one year at a time. Reading through the latest 10K's and quarterly results it doesn't seem like the situation is very different from last fall in regards to selling their storage capacity. Some on contract, some on spot.

 

So why is it down? I hope someone else here knows more about oil storage than I do and can tell me, because looking at the filings it doesn't seem like they have a much harder time than last year extending those contracts. They did mention in their latest earnings release that more capacity might come on the spot market, but I can't see that in their numbers and insider buying has been heavy. There's around 16m common shares and around as many IDR's which are all owned by Apex entities. The distribution hasn't been raised since the IPO but from my understanding (new to MLPs) Apex is incentivised to raise the distributions because they'll get a bigger cut that way.

 

The company doesn't have quarterly calls and Apex is privately held, so there's not a lot of transparency and information but I already took a position. Did anyone take a look?

 

 

[DTEJD1997]

I am starting to look at this.

 

I love the fact that it is virtually debt free...and pays a very healthy dividend.

 

I also like that it is in the oil & energy sector.  Investors are running for cover in the sector and EVERYTHING is getting sold, it has all got to go!

 

There has been some rumbling of conflicts of interest with Apex though.

 

Storage should be good, as long as there is demand.  There is also the possibility that the company grows storage capacity and should be able to grow cash flow...

 

This is also such a small company, it can fly under the radar.

 

Definitely interesting and will be doing more research on it....

[kab60]

I think there are the traditionel conflicts of interest with MLPs. Apex owns all the IDRs but Apex also owns a lot of the common shares of WPT. Apex and WPT chairman has been buying WPT stock worth +2,5m USD in the last couple of months (since it dropped below 14 USD per share), so though I think the structure isn't very transparent (since Apex is private) I take some comfort that he seems to be eating his own cooking. It makes me speculate that a distribution raise could be on its way, at least Apex is incentivized to do that, but there's no way to know. They might be more affected by the low oil prices than I suspect, so I guess we'll see.

 

Like you I like the fact that they haven't burdened WPT with debt, and it doesn't seem like WPT has been overpaying for the terminals they've bought by Apex (WPT's ROE/ROIC is pretty crazy - espescially when you look at owner earnings instead of net income).

[DTEJD1997]

Kab60:

 

Thanks for the reply.  I appreciate seeing these small caps get some discussion...

 

As there is virtually no debt, WPT can do some amount of acquisitions.  Of course, this is presuming they can even get a loan (highly likely).  If they can pick up an asset for 8X cash flow, and borrow a little bit of money at 6%, we could get a income on the acquired asset.

 

Do you know management's philosophy regarding debt?  Some companies will totally avoid it.  My preference is to strongly avoid it...but if a good asset can be acquired at a good price, they should pull the trigger.  Of course, the debt should be relatively quickly paid down...

 

Another thing I was thinking is that once oil recovers a bit and herd calms down, what will WPT be valued at?  In a normalized environment I would think a dividend of 6% or 7% would be normal.  Thus, we could be looking at a 50% gain when things normalize.

 

Do you know of any other interesting situations that have good dividends?  I've been looking at BDC's...

[kab60]

I can't figure out BDC's and stay away from small financials so I can't help you there. I don't know much about management nor their view on debt, but they've grown capacity double digit since the IPO solely from cash flows so I expect them to grow moderately without taking on debt.

 

I think the business could easily handle some debt but I'm fine with the way it is; if they take advantage of the balance sheet that's just optionality and I can easily wait while collecting a 10 percent dividend. I don't value stuff on the dividend yield but it used to trade around 5-6 percent (I wouldn't touch it at those prices).

[kab60]

Company reported results - adjusted Ebitda up 10 pct. to 62,6m. 490m marketcap, no debt, 8,6 pct. yield. I think it's a bargain, but as a foreign investor I'm taxed heavily due to the MLP structure (found out when I got the first divy) it seems, so I might take the profit and leave it behind. Sucks.

 

http://www.businesswire.com/news/home/20160329006552/en/World-Point-Terminals-LP-Announces-Increased-Revenues

[kab60]

Q2 results out. I'm surprised no one seems interested in a debt free, growing and almost 8% yielder trading at a pretty low valuation and with what seems like very high barriers to entry.

 

http://seekingalpha.com/pr/16573922-world-point-terminals-lp-announces-financial-results-quarter-ended-june-30-2016

[glorysk87]

How much upside do you think is left?

 

I hadn't seen this topic before but the company looks very interesting to me.

[mountboney]

I've got a 4% position in it. Very low risk 8% yield plus slow growth. Very steady earnings, no debt. Pretty much ignored by the market except during periods of MLP volatility. I'm guessing it works its way back up to 19 (6% yield) in the next year or two.

[kab60]

I don't think there's a ton of upside, but it used to trade around a 5-6% yield, so if one has to wait a couple of years for that while clipping 8% in divys it's not too shabby in a ZIRP world This wont be a quick multibagger but I think downside is limited and there's a clear runway for growth.

[Spekulatius]

Bought units around $15 recently. With an 8% distribution yield, I don't need price appreciation. I like that they have no debt, which gives them optionality to grow owners earnings by levering up. They grew EBITDA almost 10% last quarter without issuing units, which is a great result compared to most MLPs.

[winjitsu]

Take under happening at $16.80, implying a 7.1% yield on a 1.5x distribution coverage.

 

https://seekingalpha.com/filing/3541269

 

They own ~66% economic interest of outstanding units and ~70 something percent of the economic interest of the units. If they surpass 80% ownership in the tender offer, they can take force a buyout on the rest of the unit-holders.

 

I think the price is way too low but not sure what minority unit-holders can do at this point...

[Spekulatius]

Minority owners probably can't do much. I would have liked to keep this in my portfolio, but it apparently  isn't meant to be. I think there is a good chance that they will buff the offer a bit.

[winjitsu]

Minority owners probably can't do much. I would have liked to keep this in my portfolio, but it apparently  isn't meant to be. I think there is a good chance that they will buff the offer a bit.

 

;)

 

Revised offer for $17.30. Want to close before Q2 distribution.

 

I noticed some very weird trading yesterday and was able to pick up a few shares at 16.05!

 

[fareastwarriors]

Minority owners probably can't do much. I would have liked to keep this in my portfolio, but it apparently  isn't meant to be. I think there is a good chance that they will buff the offer a bit.

 

;)

 

Revised offer for $17.30. Want to close before Q2 distribution.

 

I noticed some very weird trading yesterday and was able to pick up a few shares at 16.05!

 

Awesome!

[Spekulatius]

I had a standing sales order at $17.1 and the shares went out the door. Now, I am looking at the less enviable task replace my holding in WPT? Candidates  are EEQ (MLP from ENB), ENB (i own already some ENB and EEQ, would just buy more, BPL (yielding 7.6% ) and somewhat solid and perhaps  EPD if goes a bit lower.

 

I had a decent chunk of WPT, simple as low risk parking investment, yielding 8%. From the above, some come close in yield (EEQ exceed it), but they are all levered, while WPT had no debt whatsoever.

 

I hate this takeout.

[kab60]

I'm happy some people made a bit of money on this idea, but I understand the frustration with the takeout. It's a pretty bad deal for shareholders. Oh well. On to the next thing.