(Image: Zen Buddha Silence, by Marilyn Barbone)
June 28, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Global Ship Lease (GSL): https://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): https://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): https://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): https://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): https://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): https://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): https://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): https://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): https://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at Ciner Resources LP (CINR). Ciner Resources is structured as a fixed-distribution master limited partnership. Ciner is one of the largest and lowest cost producers of soda ash in the world. CINR has a market cap of $255 million, with $51 million in cash and $178 million in debt. The current stock price is $12.90. The current dividend yield is 10.54%.
Step One
First we screen for cheapness based on five metrics. Here are the numbers for Ciner Resources LP:
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- EV/EBITDA = 4.73
- P/E = 9.07
- P/B = 1.49
- P/CF = 3.41
- P/S = 0.80
(These figures reflect Ciner Resources’s 51% ownership stake in its soda ash business. Also, the ratio’s are based on normalized numbers—using a 30% increase in production, which will happen in the next couple of years.)
Step Two
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: https://boolefund.com/piotroski-f-score/
CINR has a Piotroski F-Score of 8. (The best score possible is 9, while the worst score is 0.) This is very good.
Step Three
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). Ciner Resources has TL/TA of 45%, which is good.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At Ciner Resources, insider ownership is approximately 25.5%. This is good.
Shareholder yield is the dividend yield plus the buyback yield. At CINR, dividend yield is 10.54% and buyback yield is zero, so shareholder yield is 10.54%. This is very good.
Each component of the ranking has a different weight. The overall combined ranking of Ciner Resources places it in the top 30 stocks on our screen, or the top 1.2% of the more than two thousand companies we ranked.
Step Four
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
Here is the company’s investor presentation from November, 2020: https://www.ciner.us.com/wp-content/uploads/2020/11/Investor-Presentation-Q3-2020.pdf
Ciner Resources has a structural cost advantage because it is a natural soda ash producer (from trona) rather than a synthetic soda ash producer. Ciner’s costs are about 50 percent lower than those of many international competitors.
Moreover, Ciner recently reduced its cash distribution by 40%. Its current cash distribution is $1.36 per share annually. That’s a yield of 10.54%. The company is using the extra cash to boost its production by 30% over the next couple of years. After production has been boosted, Ciner Resources will increase its cash distribution to roughly $2.60 per share annually. Assuming an 8-9% dividend yield, the stock would be worth $29 to $32.50. See: https://www.valueinvestorsclub.com/idea/CINER_RESOURCES_LP/1895980459
(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)
Intrinsic value scenarios:
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- Low case: Even if prices were to drop, Ciner Resources could likely pay over $1.00 per share in annual dividends. In this case, the stock would be worth $10. That’s 22.5% lower than today’s $12.90.
- Mid case: Ciner Resources is likely worth at least a dividend yield of 9% based on a dividend of $2.60 per share annually. That would mean the stock is worth roughly $29, which is 125% higher than today’s $12.90.
- High case: Ciner Resources may end up paying $4.00 in annual dividends. Assuming a dividend yield of 8%, the stock would be worth $50, which is over 285% higher than today’s $12.90.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: https://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: jb@boolefund.com
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.