Calumet is cheap with a strong Free Cash Flow (FCF). We have said it. You have heard it. Will anyone care?
We have previously listed the catalysts coming:
- Sale of its Montana Refinery – in process
- A reclassification from being a Refiner to Specialty Chemical company. In transition.
- The potential for a large dividend. With more than $2.00 per share in FCF, $1.00 dividend would not surprise us.
- Cheap valuation at about 1.3 times one-years Free Cash Flow. We feel that is conservative.
- Price is crossing above its 200-day moving average. Happening now.
Today someone else is saying something similar to our comments. Not wanting to be the lone “Cryer” in the wilderness, we are posting the key points to this blogger; Patient Tech Investor at Seeking Alpha.
Seeking Alpha, by Patient Tech Investor, Sept 23, 2020
Intro:
- The company generated a boatload of cash in the second quarter, nearly $70 million from operations, during what should have been an extremely difficult quarter.
- We expect the company to have enough cash by the end of 2020 to cover its next bond payment not due until 2022.
- With or without the Great Falls refinery, Calumet should generate significant amounts of positive cash flow.
- After the June quarter report, we are confident that the Shreveport refinery requires $12-$15 GC 2-1-1 spreads long-term to cover corporate overheads.
Body of article: link
Summary:
Calumet, on the back of a stronger Specialty performance even during difficult macro events, generated a significant amount of cash in the quarter. It appears to us that the company will continue generating cash for the rest of this year and into the foreseeable future, despite refining headwinds that might still exist. The potential sale of the Great Falls refinery would likely speed their pathway to deleveraging, but we believe that a sale is not necessary as this asset is poised to continue to generate lots of cash into the future. At $2-$3 a unit, the price is still dirt cheap.
LOTM: Our goal is not to repeat someone else’s comment, as much as provide third party confirmation that we have back-up views of what we at LOTM see.
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