Read on Twitter
1/n
Recently been thinking about how, in depressed industries, picks-and-shovels co's with stronger models have been beaten just down as much, if not more, as their capital incinerating customers.
i.e.
Airlines
Energy
Recently been thinking about how, in depressed industries, picks-and-shovels co's with stronger models have been beaten just down as much, if not more, as their capital incinerating customers.
i.e.
Airlines
Energy
For instance, $AAL and $AER are down 50% and 60% respectively YTD.
But $AER has locked in leases with airlines, so effectively acts as a secured creditor, plus it has exposure to East Asia, which has been much better, while American air traffic continues to languish
But $AER has locked in leases with airlines, so effectively acts as a secured creditor, plus it has exposure to East Asia, which has been much better, while American air traffic continues to languish
3/n
$AAL bonds trade at 11% yield, but $AER is at ~4x PE, 0.5x P/B, which is fascinating, if we consider that $AER essentially has better terms on its credit(can pull out any time).
$AAL bonds trade at 11% yield, but $AER is at ~4x PE, 0.5x P/B, which is fascinating, if we consider that $AER essentially has better terms on its credit(can pull out any time).
4/n
$AAL EV is the same as 2020 Jan, as debt has been raised and cash has been burned. Cash burn is down to ~$40m per day, or 1 year worth of liquidity, and the historical ~10% EBIT margins at best mean that it's hard for $AAL to make money unless air traffic returns to normal
$AAL EV is the same as 2020 Jan, as debt has been raised and cash has been burned. Cash burn is down to ~$40m per day, or 1 year worth of liquidity, and the historical ~10% EBIT margins at best mean that it's hard for $AAL to make money unless air traffic returns to normal
5/n
Meanwhile, $AER has no cash burn unless revenue drops by ~60%(60% of its customers go bankrupt - can't wiggle out of leases), and they've been able to sell airplanes(!!) and stay profitable, so EV is actually lower than in Jan, while book is higher(for now)
Meanwhile, $AER has no cash burn unless revenue drops by ~60%(60% of its customers go bankrupt - can't wiggle out of leases), and they've been able to sell airplanes(!!) and stay profitable, so EV is actually lower than in Jan, while book is higher(for now)
6/n
No reason why stock prices should be so aligned with each other, considering the seniority of leases built into $AER's model, and superior business economics.
No reason why stock prices should be so aligned with each other, considering the seniority of leases built into $AER's model, and superior business economics.
Similarly, Nat Gas has been going up as associated gas from shale oil decreases(~15% of US gas production)..
See more below: https://twitter.com/BvddyCorleone/status/1319388061520809985?s=20
See more below: https://twitter.com/BvddyCorleone/status/1319388061520809985?s=20
8/n
The fan favourite appears to be $AR, or maybe $RRC.
These theses is that $AR is levered to nat gas prices(in 2022), and that they can deliver $500m of FCF on a 1b of mkt cap and 4b of net debt via some cost savings and flat production and ~$2.75/mcf.
That's ~10x FCF
The fan favourite appears to be $AR, or maybe $RRC.
These theses is that $AR is levered to nat gas prices(in 2022), and that they can deliver $500m of FCF on a 1b of mkt cap and 4b of net debt via some cost savings and flat production and ~$2.75/mcf.
That's ~10x FCF
Sorry for the rant, but something is wrong here:
$AAL(cash burn, 10% margins, needs ~80+% of seats filled to break even, no change in EV since Jan, negative book, 4x 2019 PE)
vs
$AER(no cash burn, 25% margins, gets paid without flying, EV -10% since Jan, 0.5x p/b, 3x 2019 PE)
$AAL(cash burn, 10% margins, needs ~80+% of seats filled to break even, no change in EV since Jan, negative book, 4x 2019 PE)
vs
$AER(no cash burn, 25% margins, gets paid without flying, EV -10% since Jan, 0.5x p/b, 3x 2019 PE)
$AR
(Legendary crapco, ??? declines, capex all the time, nearly went bankrupt, 10x EV/FCF, Shale E&P, ex PE, conflicted insiders own more $AM)
vs
$BSM
(Around since 1980, no capex needed, keeps on discovering new gas in their dirt, 7x EV/FCF, insiders own 30% -that's all)
(Legendary crapco, ??? declines, capex all the time, nearly went bankrupt, 10x EV/FCF, Shale E&P, ex PE, conflicted insiders own more $AM)
vs
$BSM
(Around since 1980, no capex needed, keeps on discovering new gas in their dirt, 7x EV/FCF, insiders own 30% -that's all)
11/n
remember that $bsm has stupidly margins since they have basically no COGS- just an income stream offset by g&a, interest and taxes.
like I get that optionality/liquidity/familiarity are important, but the market is really throwing the baby out with the bath water here.
remember that $bsm has stupidly margins since they have basically no COGS- just an income stream offset by g&a, interest and taxes.
like I get that optionality/liquidity/familiarity are important, but the market is really throwing the baby out with the bath water here.
