PBF - PBF Energy

[neil9327]

Hi,

 

Just joined the forum.

 

I'm currently reading "The Intelligent Investor" by Benjamin Graham. In Chapter 15 "Stock selection for the enterprising investor" it advises the following criteria for selecting stocks (page 385):

 

1a) Current assets at least 1.5 times current liabilities

1b) Debt less than 1.1x net current assets

2) No deficit (presume this means loss) in the last 5 years

3) Non zero dividend in the current year

4) Last year's earnings greater than those 5 years ago

5) Market cap less than 1.2x net tangible assets.

6) (not numbered, from earlier on page 385): Price/Earnings (PE) ratio <= 9

 

 

In December 2018, I downloaded fundamental data (Thompson-Reuters) about almost all of the 8000 or so listed companies on the NYSE and NASDAQ, and loaded it into a database to analyze.

When I ran a "query" to find those stocks that satisfied all of the above criteria, there were only three companies listed, all of which were foreign companies available as ADR - American Depositary Receipts instruments.

Presumably this is because due to long-running low interest rates, the price of risk assets has been bid up in a search for a return.

I don't know enough about non-US stocks, so I disregarded these.

 

So I relaxed the criteria in 5) a little, and a fourth company appeared:

 

PBF Energy Inc

 

 

The figures for this company are as follows (dollar amounts rounded, in millions), with the code for the data type in brackets:

 

1a) Current Assets (ATCA): 3802

Current Liabilities (LTCL): 2418

ratio: 3802/2418

= 1.57

= Pass (greater than 1.5)

 

1b) Total Debt (STLD): 2191

Current Assets (ATCA): 3802

ratio: 2191/3802

= 0.576

= Pass (less than 1.1)

 

2) Minimum earnings (EIBT) (5 years): 55.8 (not sure what year)

= Pass (positive, not negative)

 

3) Current year's dividend per share (DDPS1): 1.2

= Pass (above zero)

 

4) Earnings 2013 (EBIT): 230

Earnings 2017 (EBIT): 799

= Pass (2017 earnings above 2013. OK this is 4 years not 5, but hey).

 

5) Tangible Assets (APPN): 3479

Share price (on 23rd Jan 2019): 35.4

Shares Out: 119,889,666

Market cap/tangible assets = (share price * shares out / 1000000) / tangible assets

= (35.4*119,889,666/1000000) / 3479

= 1.22

Fail, but only just, being greater than 1.22

 

6) Share price (on 23rd Jan 2019): 35.4

Earnings per share (EPS_TTM_12M): 6.44

Price/Earnings (PE) ratio: 35.4 / 6.44

= 5.49

= Pass (less than 9)

 

 

So according to Ben Graham's rules, this company would appear to be a good investment. What do you think? Have I missed anything?

I read the company's most recent quarterly accounts, and there was nothing obviously untoward - but I'm not an accountant.

There was no obvious adverse news about the company, which is an oil refiners for unbranded fuel.

 

Thanks

[neil9327]

One potential issue with them

In their last annual report:

 

https://investors.pbfenergy.com/~/media/Files/P/PBF-Energy-IR-V2/documents/annual-reports-and-proxy/pbf-energy-2017-annual-report.pdf

 

on page 60, the profit and loss accounts for 2017, there is a line item in section "Other Income (expense)": "Change in Tax Receivable Agreement liability"

of $250 million.

This increases the "Net income (loss) attributable to PBF Energy Inc. stockholders" to the stated figure of $415 million.

So without this item, it would is $415 - $250 = $165 million.

 

I don't know what Tax Receivable Agreement liability is, but a quick google suggests it is a way of increasing the value of assets that can be then deducted against tax. But I think this line item would be a one-off, not an ongoing item - so should be reported as such?

 

Given that the current market cap is around $4.3 billion, this implies a P/E ratio of 26. Which makes the shares quite expensive. But maybe using the net income to stockholders as the "E" in P/E is not correct? (if not why not?).

 

 

[cameronfen]

Have you looked at historical earnings?  Is $416 million resemble the baseline earnings or $165 million.  Usually midstream companies pretty stable in terms of earnings I think, but I'm not really an oil and gas person. 

[Saluki]

This is starting to look interesting again.  I owned this in the low 20s, sold in the low 30s, kicked myself as I saw it go above 50, but now it's in the mid 20s again. 

 

Normally the price of these refineries goes up and down along with the crack spread (the difference between what you can buy a barrell of oil for and the amount that you can sell the gasoline for) but now the crack spread, which moves around between 10 and 20, is at the high end but the price of this and several other refineries are getting beaten down.  Why? Flooding in the midwest disrupting supply and mexico tarrifs raising the price of oil inputs (along with crazy stuff in the middle east).  If you believe these issues aren't serious, I would start a position if this goes below $22 and back up the truck at $20 or below. 

 

This isn't a multi bagger, but it's got a nice dividend and it's a safe place to park your money for a while (so are PSX, HFC and other refiners)

 

[Saluki]

This is up over 20% since I posted this last week.  I'm not saying this to gloat, but just the opposite to rub my nose in my own mistakes so I don't make them again.  Buffett says that when it starts raining money, go out there with a bucket, not a thimble.  I didn't want to sell anything to add to my small position so I figured I could build on it over time.  When it comes to selling sometimes I feel like a person on the TV show Hoarders who makes up excuses for why I need to hold onto this. 

 

In the meantime, a competitor's refinery in Philadelphia literally blew up and that sent the price of this and a few other refiners up.  I don't think it's a win if you're right for the wrong reasons (definitely didn't forsee an explosion when I figured out the price target), but I don't hold many positions so If I'm convinced of something, I should probably take a bigger first bite then keep nibbling over time.  Making a lot of money (percentage wise) very quickly on a very small position is it's own special kind of torture.

[eggbriar]

This is up over 20% since I posted this last week.  I'm not saying this to gloat, but just the opposite to rub my nose in my own mistakes so I don't make them again.  Buffett says that when it starts raining money, go out there with a bucket, not a thimble.  I didn't want to sell anything to add to my small position so I figured I could build on it over time.  When it comes to selling sometimes I feel like a person on the TV show Hoarders who makes up excuses for why I need to hold onto this. 

 

In the meantime, a competitor's refinery in Philadelphia literally blew up and that sent the price of this and a few other refiners up.  I don't think it's a win if you're right for the wrong reasons (definitely didn't forsee an explosion when I figured out the price target), but I don't hold many positions so If I'm convinced of something, I should probably take a bigger first bite then keep nibbling over time.  Making a lot of money (percentage wise) very quickly on a very small position is it's own special kind of torture.

 

I watched this one keenly since inception because of my admiration for O'Malley, not for the industry.  When he left, I had a hard time justifying it and exited.  But like you I picked up a little after it fell so much and lucked out as well.  I sold the last of it this morning.  I followed O'Malley all the way back from when he did his magic with Tosco. 

[Saluki]

I've been adding to this again.

 

It's more attractive in the low 20s than the last time I bought it at this price.  When you add up the refineries, pipelines and other pieces you get a higher number now than you did a couple of years ago.  PBFX, which they own half of, was worth $800mm when I owned it last time, now it's worth $1.3Bln.  And instead of having 5 refineries, one of which was in the process of being upgraded, they have 5 great refineries and just contracted to buy a 6th (and the seller is paying the $200mm for the cost of the upgrades).

 

I know energy companies are taking a beating right now, but refineries are more like toll bridges than E&P companies. There hasn't been a new refinery built in the US since the 1970s.  The number of remaining refineries has gone down 30% since the 1980s, but the remaining refineries are processing 50% more barrells, so the money is being divided among fewer players. 

[Foreign Tuffett]

Shutting down Paulsboro

 

 

https://www.reuters.com/article/us-pbf-energy-paulsboro/pbf-energy-to-shut-fuel-producing-units-at-paulsboro-new-jersey-refinery-letter-idUSKBN27E00P