Description

This will not have as high an IRR as my last thesis, but think it could still be interesting.

Long PARR, buybacks supporting 70% upside to SOTP

PARR owns gas stations, a logistics network and a refinery. A quick SOTP analysis suggests that PARR is grossly undervalued compared to its peers.

Businesses

Gas stations

PARR owns a bunch of gas stations in Washington, Idaho, and most importantly, Hawaii(where the majority  of its stations are). With local economies of scale and high incremental margins, gas stations can deliver 20+% Cash on cash returns at scale. Mainland peers like CASY trade at low-teens EBITDA, and gas station assets have historically been sold at similar levels (MPC prior divestiture for instance)  

Logistics

PARR also owns a multi-modal logistics network, which is a mixture of relatively scarce port and pipeline assets.

Refining

I won’t go into the whole refining complex, but in short PARR’s assets owing to their unique locations is interesting. Owing to the lack of allowed infra buildouts, the west coast’s major source of gasoline is from Asian imports. Parr’s unique Washington assets means that it benefits from any dislocations in either shipping or California port strikes. Hawaii is also a much more insulated and stable market. All of this implies that PARR should trade at a premium to the average crapco refinery.

SOTP

Applying the 12x gas station multiple to the ~65m of EBITDA that PARR produces from its gas stations implies a 720m EV.

Using a more sanguine 8x multiple for the logistics business implies ~ 560m of EBITDA, which is in line with midstream comps given the limited ability to build more of these assets.

Given that cracks in 1Q had normalized back to pre-covid levels and are in a seasonally weak period, ~ 400m through the cycle (slight annualized premium to 1Q) seems about right, at ~ 6x EBITDA(similar to what the mkt is pricing in for the peers seems realistic, even if PARR has better locations)

Catalyst

Management has indicated that this ~ $25/share price is highly accretive and they intend to deploy excess cash (they have ~ 200m of BS cash and no ST maturities, with 80+% of total debt only due in 2030) into share repurchases. This is obviously sizable given the relatively low 1.5bn mkt cap.

More intriguingly, they have indicated that hinted that the gas stations are potentially up for sale, which would be significantly value accretive. Focus is on small tuck-in acquisitions, and overall track record of cap allocation and share performance has been good versus broader refienry complex

Catalyst

Buybacks

Divestiture