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

To: bruwin who wrote (66601)	2/21/2021 12:10:49 PM
From: Elroy	Read Replies (1) \| Respond to of 78817

So based on that previous calculation I did using UAN's "Gross Profit" being about 28% of its Total Revenue I think this is your error, but I'm not sure. UAN's direct costs should NOT (I think) fluctuate with revenue. So it's not right to use a percentage of revenue for direct costs. In Q3 2020 when sales were $78m, direct costs were $40m. If Q1 2021 sales are $120m, I think direct costs will stay $40m. Direct costs don't know what revenue is. Production volumes in the two quarter will be about identical. But......I'm not sure about that. But I think it's true, and that's what provides the amazing leverage I'm hoping for. There is a cost input called Cost of Materials which is roughly 25%. This has gone up recently (natural gas and pet coke are the input costs, and natural gas has increased in price, pet coke I have no idea). But the idea is revenue should go up due to higher price, while direct costs stays fixed at $40m. As I said, I'm no fertilizer expert, but that's my guess. ---- Here's what I wrote earlier. I think it's accurate. 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: bruwin who wrote (66601)	2/21/2021 12:12:47 PM
From: Elroy	Read Replies (2) \| Respond to of 78817

You're more of the expert on MLP's than I am. I've never traded them. Personally they look far too risky and uncertain for me, but that's just me. We're discussing UAN as an investment, regardless of the tax implications. I think UAN being an MLP doesn't much change the fact that they're about to throw off lots of distributable cash, it just changes your tax treatment of the units and distributions. In other words, being an MLP doesn't affect anything that I've written, since I haven't discussed taxation.