Description

GEL was written up in the depths of covid by lpartners and I would refer anyone interested for a bit more color on the company. Hat tip to lpartners who likely has his basis down to zero after his well timed acquisition and related dividends. End of year selling and mlps in general got torpedoed. We consider GEL to be one of the many casualties. 

I think the market has presented us with a pretty interesting opportunity. They released a beat yesterday in order to provide color on the refinancing of their notes. The announcement included $180 mm ebitda in Q4 vs $141 mm in EBTIDA for Q4 ’21.

The story has largely played out as predicted. The company is now at the cusp of a few catalysts coming together.

• Soda ash pricing has been raised on “85% of anticipated sales volumes” for ’23 (recent acqusition by Sisecam pointed to $530/ton of implied value)
• Increased capacity out of the Grainger facility will be effective by Q3 ‘23 (Also of note, most of the capex for the expansion was done at pre-inflated costs implying a recreate exercise would be at much higher pricing)
• First oil from Argos production facility is expected in Q2 ‘23

The cap structure / torque of this enterprise makes for a very interesting call option if the company continues to execute on its strategy.

Forgive the brevity of this writeup, but we wanted to push this out in expedited manner as the company just reported a beat in earnings with plans to ref its nearest maturity. Once this is refinanced the cap structure will allow breathing room until at the earliest, 2025. We would also expect GEL to follow other issuers and attack the ’25 notes in short order.

Again, what are we playing for? We are working towards $800 mm EBITDA that may hit in as early as ’23. Slap that against a $6 bb EV that is $1.4 bb in mcap. Keep in mind the EV also includes the $402 mm of Alkali Senior Secured Notes that are due in 2042. These are nonrecourse and secured by the cash flows of the soda ash business.

This business is a combination of offshore pipelines with long term contracts and an irreplaceable asset in its Wyoming soada ash business. Covid was unkind to the soda ash business, but that presents the opportunity. There is also a Marine and Onshore Transport business, but the meat of the business is within Offshore and Soda Ash. 

We should get an update on the improved soda ash pricing next month, but long story short…if their earnings trajectory continues to track their guide / strategy. There is no reason this business shouldn’t be able to throw of $800 mm in EBITDA.

Perhaps there is a bit of give and take over the long term in terms of margin / pricing in soda ash, but at $800 mm in EBITDA and fixed charges of $500 mm between capex and interest, you now have $300 mm in FCF to sprinkle over 123 mm shares. I won't do the math for you, but if they even raise the dividend by half of that we are at an easy double from these levels.

Insiders are large owners, and we are nowhere near pre-covid levels. This name comes with its own risks, but the debt covenants permit increased distributions (call it one of the few benefits left of owning an mlp). We also don’t have to worry about IDR’s and there has been an increase in pipeline acquisitions over the last 12 months, so who knows, maybe you get a bid down the road. This name does give you the ability to re-enter so size appropriately, but we think the fundamentals are strong and likely improving over the near term.

Catalyst

Completion of refi / '23 guide