Kind of surprised to see you gone before the catalyst question of the expanded water business hasn't been fully answered.
Not sure what catalyst you refer to. Their water business is doing well. The other two segments not so much. But the water business is not really booming, it's moving along meeting lofty expectations (10% per year EBITDA growth). It hasn't surprised on the upside for a while.
For me the issue is even if the water business continues to do well for years, the debt and preferred balance is too great to overcome in the reasonably near future.
$4 billion debt and preferred = about $380m cash cost per year.
Cap Ex = about $120m cash cost per year.
EBITDA is about $650m per year, if that's all free cash, it means they may have $150m free cash per year. Usually other crap pops up to eat up a decent chunk of the free cash, but that's the "best outlook" scenario now.
They've 60 $600m of preferred D series that needs to be redeemed within 30 months. At $150m per year of free cash (best case) they've got $375m of cash flows to go toward that $600m milestone. The balance is probably manageable somehow (asset sales, fresh debt/preferred), but that takes 30 months to hopefully somehow get over that coming $600m series D hurdle. Then where does growth Cap Ex (if projects exist) come from? What about unexpected costs which always pop up?
If they had $1 billion cash to redeem all the preferreds, then the story would be super. Then they'd have $250m free cash per year, which can split between growth Cap Ex, distributions and other. But they don't have a magical $1 billion free cash to clean up their financial obligations.
The non-water businesses just stumble along and disappoint. The water business is doing well. Perhaps NGL is a stellar MLP down the road a bit, but today I'm more concerned that they miss fiscal 2025 guidance and the realization that they may not have $600m to redeem the D's will kick in, and the risk (seems large to me) may not be worth the reward, which seems more likely to materialize in about three years (if ever) than next year.
I could be wrong, but I think it would take some positive surprises in all the businesses for the unit price to reach $10. Hard to invest in a partnership that has been stumbling along for 2 years on the expectations that all three of their businesses will suddenly accelerate to the upside.
Any investment will do well if all their business lines accelerate to the upside, so why NGL? |
