CS Writes Again

TPL management views an eventual share authorization as a key piece of the puzzle to position TPL as a consolidator long term. We believe management views the steps the company has taken over the past several years as setting it up to be an eventual consolidator (e.g. C-Corp conversion, new Board of Directors, enhanced operational disclosure, new accounting firm, recent hires, etc.). And that adding a share authorization is a key piece to their long-term outlook for the company. Since we initiated coverage, it has become increasingly clear that this is in direct contrast with a group of vocal long-term retail shareholders who want to see the company return to its roots (TPL was originally a liquidating trust) with a focus on continued share buyback, maximizing margins/capital efficiency, and an aversion to large-scale M&A activity. Our view is that as management fully articulates its strategic outlook, it will likely drive an accelerated shift in the investor base toward an institutional audience.

If share authorization for M&A is so important to management, why isn’t it on the proxy this year? Is it possible that the board and management aren’t aligned on this? And why does CS keep beating this drum? Who is feeding this line of thinking to CS?

11 thoughts on “CS Writes Again

  1. I certainly don’t recall the c-Corp conversion being proactive! More like a reaction to the reaction to their terrible ideas. Also not confident there is good evidence in this team’s capital allocation skills. How do you find things that are additive to this portfolio at a price that makes sense?
    Glad Murray is on the board, I’m sure asking these and better questions.


  2. Seems like there’s a difference of opinion on strategy between TPL’s management and it’s owners (and to be clear, there’s hardly any overlap between those two groups).

    CS thinks management will change out their shareholders:
    “Our view is that as management fully articulates its strategic outlook, it will likely drive an accelerated shift in the investor
    base toward an institutional audience”

    Maybe instead shareholders should change out their management.

    Liked by 2 people

  3. Why would TPL have to issue more shares? They have a big cash position, no debts, and each quarter adds more money to their already large cash position. What could they possibly buy that approaches the big profit margins they currently post? Only another royalty company would come close to the efficiency they have. Buy more land? They already are the largest private landowner in Tx. Do a split, buyback shares, and use their big cash horde to selectively purchase royalty streams. Oh…and steadily increase the dividend

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  4. Garbage in garbage out. There was and will never be additional shares authorized. Does management need more compensation? CEO has received some $9 million in past three years so why give him shares. He can and should but a lot of them but hasn’t purchased a lot in the open market like we the shareholder owners. The idea of acquisitions is not only dumb but insaneTPL has he finest properties east of Saudi Arabia.. Management is the biggest liability and danger to shareholder value. TPL needs to be an empire builder like we need holes in our head. Shame C R is missing the picture. The TPL assets mean tge top line of the P&L has tremendous growth ahead for years to come. The value destructors are obvious. The company collects royalties and is NOT an oil company such as Exxon et al and it will be death to our golden goose if heaven forbid it tries that.

    Liked by 1 person

  5. in complete agreement with Frank, G and Teamdeck. I really don’t want to see TPL dominated by institutional investors especially hedge funds. A long time ago a company I was associated with had a lot of cash and became a target of Elliot and gang. Long story short, issuing special bonds/convertibles etc. New board members etc all for extraction of said cash. Dirty as F. Definitely don’t want to be what CS wants. Just keep doing what TPL was doing before. @#$@$@ Why f with something that actually works?


  6. I am hearing GREAT points (pro old model – new management not aligned )
    Those are words – what are action items????


  7. Its curious why CS is making this noise? What angle does it matter to them, unless there was M&A investment banking that was offered, and spurned by TPL. Hell knows no fury like that of an investment bank scorned!

    They are partly correct, there is a large division between the legacy owners, and the new TPL corporation. The excessive overhead, a too large board of directors that are overcompensated (with most owning no shares), pay practices, and a nearly invisible buyback policy this year are just some examples.

    At least we have Murray Stahl/HK ( who continue to buy 20-40 shares a day) with a similar view. This maybe part of their master plan, accommodations needed to be made to get to a c corporation, but over time they may bend it towards where they want it to go. They play an especially long game.

    The proxy voting will be informative. Many on this blog will vote against everything.

    Liked by 1 person

    • The CS analyst based his valuation on HIS prediction of CF this and next yea. First of all as a long term investor in this stock since prior to its 5-for-1 stock split I don’t seem to recall his ever having any prediction or opinion of any kind ever before. Odd he comes on the scene suddenly with an analysis based only on his prediction of cash flow this and next year which we all know will likely prove inaccurate. He then proceeds to compare TPL ratios. With companies have no similarities whatever to TPL.The huge difference bing the nature of and the amount of property with the best oil and gas reserve in the world and so many other passive sources of revenues. A year or two of cash flow creation clearly overlooks the value and amount of the resources. The way the CS report values the company is silly in that suppose it had not any cash flow because it was not allowing any drilling or trespassing on its vast owned in fee land. Would the analyst ave said TPL stock was worth $800 or zero?

      Most of us know the the home we might own produces no cash flow (in fact it costs us CF) the value of our homes has generally increased massively.

      In the long run TPL will have multiples of the gentleman’s CF prediction. Once management is changed and the unneeded G&A expenses which have brought no benefits whatever but built by current management seeking only to build a big oil company-like organization are eliminated, the royalty model fully will be fully restored with or without the water business. CF of course will increase dramatically and as the the extraordinary assets recognized value will certainly out CS ST view and calculations not withstanding

      Liked by 1 person

  8. If I’m not mistaken, I recall when they setup the c-corp that there was already a provision for them to issue additional shares at management’s discretion. That might explain why there is nothing on the proxy.

    It is obvious the strategy of buying back shares to increase value for shareholders is done. They are just going to gift these shares to management and the BOD. In any case, the amount of cash they can use to buy back shares (after the dividend) vs the market cap of the company pretty much makes it meaningless.

    The ridiculous income of the BOD is in no way shareholder friendly.

    They certainly seem like they want to become a big corporation, and they are going to use their extra cash to grow the company. The way to grow your investment is for the company to compound the cash flow into further and better investments. They have to make the best investment decisions with the available cash, i.e. perhaps they believe they get better long term returns by buying additional royalties vs buying back stock.

    That being said, I was very disappointed when the BOD salaries were disclosed at the time of the c-corp creation, and the tiny $20 million share buyback made it obvious they are changing directions and will not be doing what long term retail shareholders want them to do. MS and Oliver got on the BOD with our help, but their long term vision perhaps does not align with ours. Plus they get exorbitant salaries and free shares. MS buying what will probably amount to 6000-7000 shares for the year on the open market is peanuts, especially since he’s going to be getting lots of free shares now.

    Perhaps the time has come to accept the fact that this is turning into a different animal. And make your decisions based on whether this is where you want your investment dollars if your vision does not align with management’s or the BOD’s.

    I sold a majority of my shares over the course of the year at higher valuations, but still hold a small portion. When it came down to it, I saw better investment opportunities than TPL at $1600-$1700.


  9. Anyone remember when Cook was running for the Trustee position, he put out his emotional fireplace video and stated that he was in full agreement that management/trustees should be aligned with shareholders, i.e. have a stake in the company? He has bought a grand total of 0 shares since being on the BOD. Perhaps he forgot to mention that he wanted the shares for free.

    Liked by 1 person

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