Ok, here's a spooky pick. Although it's high risk, it is definitely "deep value" as it was feared the partnership would go bust, and that pushed the unit price down to a single dollar in Q4 2022.
NGL - it's an MLP in the midstream energy business.
$9 billion in annual sales, market cap about $280 million. The fiscal year ends in March, and for March 2023 fiscal year they are expecting $630m in EBITDA, up from about $540m last year.
The problem is the balance sheet - They have $2.9 billion in long term debt. They just reported Q4 2022 and at that time had $300m in short term debt due in November 2023. In January they paid down $100m of that debt, and plan to pay off the remainder by end of June 2023. So if they pay off the remainder of the November 2023 debt, then the next debt maturity is $380m 2025 notes, followed by $2.05 billion in 2026 secured notes.
They also have about $900m of preferred stock which they are not paying today, and it has accumulated about $220m of unpaid obligations.
Their plan is to pay off the remaining 2023 notes by Q2 2023, then work on getting their EBITDA up and their debt balance down to a level that will allow them to refinance the coming 2025 and 2026 debt at a reasonable rate. Then they'll work on paying the unpaid preferred obligation. Then they'll reinstate the preffered dividend. And then, they will operate like a normal midstream MLP, trying to pay distributions to common unit holders.
Whew!
They have a $500m bank revolved that they are working on expanding to $600m. They have $150m drawn on that revolver now, and expect that drawn amount to decline in Q1 2023.
So this sounds like a multi-year effort to return to normalcy. Pay down some long term debt, increase EBITDA through growth, and get their leverage down to perhaps 4.0x or 4.2x, and then refinance and roll forward all their debt.
If they can do all of the above, then it's fairly easy to put a $10 to $15 valuation on the common units. So if the company can escape bankruptcy, you may get a 4x return on your purchase, followed by (hopefully) some distributions in 3-4 years.
Anyone interested in this thing? I've got a small position purchased about a year ago, and it has finally bounced off the bottom and is heading back up. If their business can deliver a little growth - as just happened in the current year - then there is a lot of value in a $630m EBITDA stream that shows a bit of growth, more value than the current $270m market cap. If they can stabilize the balance sheet (the big if) and you put a 2x multiple on the EBITDA, you're at $1.3 billion equity value. The current equity value is below $300m, so you can see the "deep value" story.
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There's a lot of money to be made in equities of companies that almost go bankrupt.....but don't. |
