Quarterly Trading Patterns: None Detected

A few posts down, I posited a theory that $TPL share price weakness apparent in the first month of calendar quarters was due to a lack of buying from the trust.  My hunch was that the trust was prohibited from buying due to it having material non-public information in the form of quarterly earnings (blackout).  Some crude analysis showed that my theory appeared to hold water.

It was fun while it lasted.  The (cruder still) analysis below shoots some holes in my bucket.

A logical extension of my blackout theory is that we should see a dip in average daily trading volumes during the first month of each quarter.  This was barely the case.  Since the stock split in July 2007, the first month of each calendar quarter has had an average daily volume that was lower than the average daily volume of the entire quarter in 23 out of 44 quarters.  Or 52.2%.  Hard to call that significant.

So, without wasting anymore of your time, here a couple charts that make the point.  Volume in the first month of calendar quarters does not appear to follow any easily discernable pattern.

quarterly volume

quarterly volume relative

Source: Bloomberg



9 thoughts on “Quarterly Trading Patterns: None Detected

  1. Thanks for all the research. Even though the data is inconclusive, I still think there must be some kind of blackout period imposed on the Trust during the lead up to the quarterly earnings report. I wonder if the SEC has any standard guidelines that all public companies must adhere to, or I wonder if this is public knowledge that the CFO (Mr. Packer) would be willing to disclose to any shareholders who inquire.
    A rough few weeks for share price for sure with no specific dramatically negative news to speak of. Would have expected a 10% correction at some point this year, but we closed today down about 15% down from the high price of the year attained several weeks ago ($877). Good buying opportunity for those with cash on the sidelines (that would not be me) because even a decent earnings report should hoist us back to $850+ as if no correction even occurred.

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  2. Another way to look at this. Between end of year 2016 and 2017 they retired roughly 106k shares. Assume 200 trading days a year means they are on average buying only 500 shares a day. If there is a blackout period, then maybe 650 shares a day being retired, assuming four months of blackout time per year. Thats too small a number to be noticed in the data.

    I think there still could be a blackout period, but the analysis is not sensitive at that detail to tell. The constant bid price support during months when buying is taking place is minor to invisible due to size.

    Wonder if the CFO would confirm or deny they adhere to blackout periods?

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    • I haven’t called the company. I probably should given how far into the rabbit hole I’ve leaped.

      One piece of evidence that runs contrary to blackout would be the purchase made by Mr Barry last week. I would have assumed that directors and c-suite would have been included in the no-purchase period.


      • Tplblogger, with all your great work in cultivating this blog and digging into meaningful research, I think you would get VIP treatment if you called the trust and requested to speak to Robert Packer. “Glenn” seems to be a very knowledgeable investor on the Yahoo conversation board and has had some success in calling and reporting out on the information he gains. As much as we like to speculate about the activities of the trust, it would be great to actually see what information can be obtained direct from the source. I am not a finance guy and have no idea how to walk the fine line between public vs. insider information, but it seems logical to me that Mr. Packer would be willing to divulge information such as how a blackout period (if one actually exists) is defined for the trust’s buybacks and the limitations placed on their employees. I highly doubt that he would be willing to divulge any strategic information about the buyback strategy (such as when and how much), but it’s worth an inquiry to test the boundaries.
        My family owns a substantial number of shares that hold the key to my childrens’ future, so I am very interested in all TPL news and totally applaud your efforts!

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      • It would be interesting to see what they officially would say. Agree with Jeff, there are some general comments on when they do this that could be shared, without giving up anything strategic, and if there is a blackout period or not.

        If you call, another question idea based on the Jean Phillippe Tissot analysis. He says the average revenue is 5% on TPL lands, and that is substantially below the average revenue for Permanian leases, if so, I am curious as to why TPL is not doing deals at the “market rate”. For the easements and water business I can’t imagine the rate being anything less. And all the land is not already leased, so its not like its under a long run perpetual contract from the 1930’s.

        On a down price day like today, hope TPL does not have a blackout period and that they are buying with both hands! 😀

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  3. Thanks, Tpltblogger, that was helpful.

    I have observed that at mid-year 2018, easements and sundry were $44.7 million and the water business was $29.2 million, for a total of $73.9 million in revenue. That is larger than the oil royalty business which was $56.8 million. So the oil royalty story is important, but the other sources are in aggregate larger, and the water business is growing faster,

    Will be very interested in seeing how the q3 ytd numbers look. Am thinking $7.50 range. Its more of a guess driven by the growth rate this year vs. forecasting each of the three major revenue components with any accuracy.

    Any thoughts by anyone here on the q3 net income number?

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    • My gut (read that as I don’t have model) says $7 conservatively. In short order we will be on the $30yr track.

      The big key to long term valuation from there is to think of the trajectory from there. How steep does the upward trend go? After earnings growth stops, how long is the plateau? There is no do doubt that the underlying land assets will keep pace with or beat inflation but there is now a huge earnings component in the valuation of the stock that makes it inherently more volatile and makes the price inherently further away from the base asset value (price/book if such a thing existed for TPL).


      • I agree with your logic, Tpltblogger. My $7.50 guestimate tried to take into account the increasing at an increasing rate nature of their earnings. (ie, the second derivative from the calculus world).

        The model I had when buying TPL in 2011 was as a general land as inflation hedge investment. The rise of oil royalties, the water business and greater extraction activity needing easements was unexpected, and has made the price go parabolic. My research suggests a long runway before the plateau of energy related revenue.

        I don’t think there is any rational way to compute book value for this stock. The land cost nothing, and with the exception of the water business there is little in the way of assets needed for the business. A very asset-light company.

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