Earnings Season Updates: The good, the bad & the ugly.
VNOM.NFE.
Welcome to the ROI club.
I’ve been watching the recent market volatility from beautiful Queenstown in New Zealand and shall be responding to the questions I’ve been receiving via some earnings commentary on certain stocks which are of interest to me.
Before digging in, I’d like to reiterate my long term thesis for secularly higher inflation AND volatility remains unchanged and my sentiments with regards to the recent volatility are best summarised by this quote from the great Murray Stahl
" I’d rather volatility than debasement”.
Well guess what lads?
We can’t avoid the latter without the former.
Let’s dig in..
The Good:
Viper Energy (VNOM).
VNOM absolutely smashed it out of the park in this quarter’s earnings and reinforces my idea of prioritising superior, capital-light business models with interests in inflation beneficiary assets. The stock is up 57.8% YTD and I’ve captured 30%+ of that since sharing with readers.
Results:
$216.71 million in revenue, which slightly surpassed the analysts' estimate of $216.28 million. A 34.8% increase compared to the same quarter last year.
EBITDA ~$200 mm annualised implies an EV/EBITDA currently of 8.5x ish for a business model offering 100% gross margins and an ROIC of 17% suggests this compounding machine is on offer for a very fair price currently.
Free cashflow of $134mm from CFO of $143mm requiring only $8.3mm of CAPEX shows the beauty of this operating model. $113mm paid in dividends implies one is being paid 6.6% per year in distributions to sit back and enjoy a 17% per year compounding equity interest..
Final thoughts:
The main risk for me here is that I do something stupid to interrupt the compounding. I’m holding for years and hoping for pullbacks to add.
Video Analysis here:
The Bad:
B.RILY Financial. RILY.
Well, this thing got smacked. -92% YTD on the back of an SEC investigation, revenue and net losses booked on investments.. the sentiment is awful.
Luckily it formed only a small part of my collateral (I had sold put options) but I decided to close them out at a loss because, whilst there’s possibly a multibagger opportunity here and a nadir in price has likely been reached, I see other less-stressful opportunities and keep berating myself for trying to get cute with these deep value plays when I can simply keep compounding my capital into high quality plays like VNOM.
The Ugly:
Newfortress Energy: NFE
Jesus Christ the stock has been volatile. Prior to the recent sell of I had traded this thing very profitably and continue to be at a loss to explain how management can be so bad at communicating the value which I believe to be on offer long term.
Revenue down 24% QoQ to $343mm Vs Q1 of $656mm yet guidance remains at $2.4B annualised along with an EBITDA guidance of $1.5B.
The stock price is down 80% YTD and I’m personally down ~30% on my position aver across all portfolios. Whilst this volatility isn’t for the faint hearted, the company is now trading at 1xBV (and less on my estimation of replacement cost)+ possibly 2x earnings 2 years out. It remains around a 5% holding overall given it has a ton of embedded energy in its construction alone and I believe will eventually be valued closer to an infrastructure or even utility company given its ability to buy historically cheap gas and sell it as watts into the grid.
I have multiple video analysis on the stock including this short segment here
Final Thoughts:
I’m cautiously adding and closing my eyes, to hopefully open them in 2-3 years time for a multibagger return.
If you enjoy my work please do me a favour and share the sub stack.
Take Care & DYODD.
Benjamin