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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (66595)	2/20/2021 8:20:09 PM
From: E_K_S	Read Replies (1) \| Respond to of 78817

Now all you need to do is see if the projected revenues (less direct expenses) are achievable w/ the projected UAN fertilizer prices. I do not know what the two facilities process at normal operating capacity, what if any constraints they have on production, if they have pre-orders and/or operate at capacity and/or store/deliver product as required (ie contracted sales) There are a lot of variables and there are always the chance of some breakdowns and/or weather that could cause some disruptions in their production. I believe their facilities are located in Coffeyville, Kansas, and East Dubuque, Illinois. Their conference call was pretty optimistic on UAN prices but it may not be until Q2 before those higher revenues would kick in. Here is a table of all their distributions made by quarter since 2011; 2017 & 2018 had $0.00 distributions (8 quarters of $0.00 distributions) ---------------------------------------------------- Remember if'/when you sell units it's always the FIFO shares that are sold first. At that time you create a taxable event equal to the amount of depreciation recapture (FIFO cost less accumulated depreciation minus sales price ) which is your long term capital gain (higher if FIFO shares were held 1 year + 1 day). The dividend income 'distribution' is tax deferred so as long never sell your units, you incur little to no current year tax liability (unless your cost basis reaches zero). Therefore the big tax event occurs when you SELL shares since that triggers the deprecation recapture calculation. Your K1 report will show what your cost basis is on all your accumulated shares, if some/all shares were sold the amount of the depreciation recapture is listed and this is the information needed by TT (Turbo Tax) to calculate your individual tax obligation. It becomes complicated if you made several Buys over the years (along w/ the 10-1 reverse split), that all shares are correctly adjusted w/ the correct cost basis. Every quarterly distribution requires that the cost basis be reduced accordingly (by the amount of the depreciation). This is similar to how depreciation recapture works w/ income property when you sell/dispose of the rental property. Welcome to MLP accounting and the dreaded K1 reports. Buying is easy it's the selling that triggers the 'tax' event. EKS

To: bruwin who wrote (66595)	2/20/2021 10:30:22 PM
From: Elroy	2 Recommendations Recommended By Area51 E_K_S Read Replies (2) \| Respond to of 78817

I'm the one who guessed $7.00 in distributions for 2021 was possible if fertilizer prices remain where they are now for the entire year. As I said, the calculation was simplistic. They paid $4.00 in a year when UAN fertilizer was about $200/ton and ammonia was about $390/ton The latest news indicates UAN fertilizer is about $260/ton and ammonia $525/ton. With fertilizer prices that much higher, and leverage in the model as once expenses are covered ALL EBITDA just flows to the distribution, $7.00 per year sounded reasonable.....but I didn't do any modeling. So now, lets do some modeling! Using the presentation format UAN uses each quarter...... ---------------------- So if I had to work it out via the financials............ UAN is going to produce roughly the same volume of UAN fertilizer and ammonia each year. The try to improve production efficiencies like any manufacturing capacity, and they have planned and unplanned downtime for maintenance, weather issues, you name it. But its fair to say the amount of fertilizer produced is going to be roughly similar each year. The distribution per year is going to be roughly Adjusted EBITDA minus Interest Expense (~$60m per year) minus Maintenance Capital Spending (??) $12 million in 2018 $15 million in 2019 ~$12m in 2020 minus Cost of Turnaround (Turnaround = shut down the plant for 3-6 weeks to fix stuff and improve production bottlenecks, it happens to one of the two plants every other year, but they skipped it in 2020 due to Covid) 2018 Turnaround expense = $6.5m 2019 Turnaround expense = $10m 2020 Turnaround expense = zero minus / plus reserves taken / reserves released = CASH FOR DISTRIBUTION So......for the full year, if we want to get that number up to $7.00, with ~11 million shares we want CASH FOR DISTRIBUTION to be $77m ---------------------- *Reconciliation of EBITDA to Available Cash for Distribution* The next question is what level of annual EBITDA produces $77m CASH FOR DISTRIBUTION? EBITDA IS OUR Fudge number EBITDA - ($60m debt service + $15m Capital Spending + $10m Turnaround expense) = $77m EBITDA = Fudge number - $85m = $77m EBITDA = $162m EBITDA = ~$40m per quarter (close enough). SOOOOOOOOOOOO the question becomes what level of quarterly revenues produces $40m of quarterly EBITDA? *Reconciliation of Net (Loss) Income to EBITDA* In their EBITDA calculation, you take net loss, and ADD BACK interest expense ($15m) and depreciation ($18m). So.....to get to $40m in EBITDA per quarter we only need to get net income to positive $7 million per quarter. ------------- What level of quarterly revenues produces $7m net income? This is a bit more difficult, but lets assume DIRECT COSTS are fixed and don't float with the fertilizer price. Maybe wrong, but I don't know how DIRECT COSTS are fluctuating so I'm just going to plug in the most recently reported DIRECT COSTS (Q3 2020, $38m) and same with depreciation, to get the quarterly estimate for DIRECT COSTS and Depreciation Revenues (our fudge factor) minus Cost of Materials (natural gas or pet coke) (25% of sales) Direct Costs ($38.5m - Q3 2020 number) Depreciation ($18m - Q3 2020 number) SG&A = $4.5m (Q3 2020 number) = Operating Profit minus Interest Expense = $15m = Net Income of $7 million To simplify, Revenues * 75% - ($38.5 + $18 + $4.5 + $15) = $7 Revenues * 75% - ($76) = $7 Revenues * 75% = $83m Revenues per Q = $110m per quarter, $7m net income per quarter, $40m EBITDA per quarter, and UAN is spitting out $1.75 per quarter, or $7.00 per year. ----------------- Dude! With ammonia prices around $525, UAN is going to have revenues WAY above $110m per quarter. In Q2 2020 ammonia was $360m and UAN fertilizer was $165m, and UAN delivered revenues of $105m. I must be doing something wrong, but this is what MY math says. It says UAN is going to gush cash in 2021 if fertilizer prices stay where they are. Where could I be wrong? I don't know. I'm all ears if anyone can explain to me why UAN is sitting BELOW the share price it was at when it paid zero distributions, I would like to read the reason. UAN could easily pay a lot more than $7.00 in 2021 if my understanding of it's fixed costs are correct. Cost of Materials probably goes up with revenues, and hopefully stays at the 25% level, but I think DIRECT COSTS do not increase with revenues since the plants are always operating as close to 100% capacity as possible. DIRECT COSTS don't know what the revenue number is, they are fixed and stink when fertilizer prices are low, and when fertilizer prices are high, they don't rise ..... I think.