Poor Decisions, Quantified

tpltblogger13 Comments

It’s no secret that I think TPL’s capital allocation policy is a joke. The cost of equity capital, measured over any timeframe, is well in excess of the implied return of an asset sold in any kind of market that is near competitive. Each day that a buyback has not been made is a day that has cost investors money. With the stock at ATHs, it’s easy to say that the stock is rich, but then again, it makes ATHs all the time. The Board eats up all the old tropes about valuation and attractive assets because everyone is incentivized to keep on making inefficient decisions. You’ve heard this all from me before…

Anyhow, our old pal 310 has put pen to paper to quantify just how much the “dry powder” strategy has hurt. It’s not pretty.

https://310value.substack.com/p/texas-pacific-land-corps-true-cost?r=535cw&utm_campaign=post&utm_medium=web&triedRedirect=true

13 thoughts on “Poor Decisions, Quantified”

  1. 310 and Special Situations Investing are two of my favorite reads (outside of the HK quarterly updates). SSI wrote a good piece on “the mathematics of buybacks vs dividends” I’d also encourage people to read.

    While at least TPL mgmt has made some cash acquisitions of late, it’s very frustrating that they think and vocalize that the company they run is overvalued and not apt for buybacks anymore.

    They can try to convince us they’re the smartest guys in the room and do all the analysis they want on what is the best use of capital to progress their goal of maximizing FCF per share… but only one is guaranteed to do so – reducing the number of shares outstanding.

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  2. The fact that management seems clueless about at what share price they can do buybacks at a bargain is concerning. This has been a problem for years during TPL’s meteoric rise. Nobody has a crystal ball, but they missed tons of opportunities to do buybacks at much lower prices than we enjoy today.

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  3. it all comes back to incentives and following the personal interest of management and how they are compensated. They are not heavily invested alongside shareholders with their own families’ wealth so they have a different incentive structure. Getting their compensation structure correctly aligned is important, or bring someone in from outside that is a serious shareholder themselves.

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  4. Great article. Classic mismatch of owner mentality vs “we work here” mentally. And a good dose of the agency problem on full display.

    I have voted accordingly. Everyone but Stahl gets a no vote for director.

    Fingers crossed we see the HK shares start to vote against some of these clowns.

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  5. What I have done is made it a dividend reinvestment way to continue compounding. It’s not tax efficient (although more so in the 401k account), but it does slowly increase my shares ownership. And is a good offset for the lame capital allocation methods seen at the company.

    Buying back the shares has been an amazing compounder over the years. Thats been how this investment worked for decades. It’s disappointing management (other than Oliver and Stahl) don’t fully appreciate this.

    I probably am not the only one doing this synthetic buyback.

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  6. TPL went public the same year the Trust was formed (1888)? That can’t be right.
    My view is they need to replace reserves, or they’re just declining. Management appears to be looking past the next ten years.
    Yes I think an opportunity was missed during COVID to buy back shares on the cheap, but I think most companies look back at 2020 with 20/20.

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  7. Time will tell about the two acquisitions, but not buying back more shares when the price was low in 2020, 2022 and 2023 is the real face palm.

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    • Let’s start out with the fact that the Board didn’t exist in 2020 the Trust was under the control of the two live and one terminal trustees who were engaged in playing I Sue with the major unitholders. The Board came into existence in January 2021 with the players selected by the two trustees who designated themselves as Co Chairs of the Board.

      A quick visit to Y Charts indicated that The Board bought back $166.737 MILLION Dollars’ worth of shares between 30 June 2021 and 30 June 2024, I don’t know what the average price was but $500 a share looks like an Eyeball average for that time frame. That would equate to about 333,474 in share buybacks. That makes sense with the two announced Share Buy Backs one for 100 million dollars in 2022 and the most recent one for 250 million dollars.

      If anyone knows the actual number of shares repurchased feel free to post it. I assume it is probably in the Annual Reports, but I don’t have time to dig for it.

      Then in 2022 we had another chapter of I Sue orchestrated by the dear departed Co-Chairs which continued until February 2024 when it was resolved by the Delaware courts. We all know what has happened to the share price since then [Grin].

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    • “Three seats for the oil-kings under the sky,
      Seven for the trustee-lords in their halls of suits,
      None for Shareholder Men, doomed to die,
      One for the Rig Lord on his rigged throne
      In the Land of Aquiremore where the Empires lie.
      One seat to rule them all, One seat to bind them,
      One seat to bring them all and in the darkness deny them.
      In the lands of Aquiremore where the buybacks die.”

      . Taken from J R Ewings ‘Lord of the Rigs’

      (still better than Amazons awful version)

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        • im your Bilbo then, there and back again.

          I’m fairly positive about where tpl may be going. Sauron and sauramon both retired and as of yet the orcs haven’t diluted us. Us hobbits seem fairly engaged and ready for war. Gandolf and Strider are now free from the bindings of the shareholder agreement and I feel one day the shire will get a new Cook. Things could definitely be worse.

          not blind either. I’ve invested enough in other mining type companies to notice empires generally cost more for less return and often benefit management more than owners. But tpl’s mngt haven’t gone crazy yet. I’m hopeful but vigilant……………………and F-ing mad at Amazon for what they did to Tolkien’s masterpiece.

          “Let this be the hour when we draw swords together. Fell deeds awake. Now for wrath! Now for ruin! And a red dawn!” – Théoden

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