Rountrip???

$455 as I write this.  Started the year at $444.  Does $TPL stay positive on the year?  YOY EPS will come close to 2.5x-ing but whatever.

Update 12/21/18:  With today’s close at $432 the Trust is offically under water on the year.  Recent trading patterns don’t have me optimistic about where the price will go during the last week of the year.  Guess we’ll get ’em in 2019.

I remain a buyer.  I’m spending more than I budgeted to pick up small blocks down here.  My kids will thank me.

tpl 2018 px action

Source:  Bloomberg

Log and RSI

log

$TPL’s recent dip looks similar to that of 2014 on a log scale though still a bit smaller.

The Relative Strength Index (14 day) associated with the current dip is fairly rare.  Buying with the RSI down here has generally been a positive over the years.

It’s worth noting that it took a solid ~2 years for the ’14 dip to be erased.

See you in 2021!

Source:  Bloomberg

This Happens All the Time

TPL closed at $871.99 on 10/3/18.  This marked an all time closing high price for the Trust.  As I type, the last trade was $729.57 which gives us a -16.3% move down from peak to current.   In that time, the S&P500 is down 7.4% on a price return basis whilst CME crude futures are down 14%.  Said simply, TPL is underperforming large caps but is just about pacing oil.

In TPL’s price zip code, a 16.3% move down equates into some big dollar swings that might hurt more psychologically than a similar move in a stock that goes from $10 to $8.37.  It’s not every day that you see a $140 down move in price.  Ouch:

price chart normal

When you observe the down move on a logarithmic scale, the current move looks reasonable in the context of of past moves.  A 10% move now looks the same as a 10% move then.  The Trust has seen many of them.  In both directions.

price chart log

So, in summary, low liquidity and a +156% total return over the past two years will give you a pull back like this.  To quote Tom Jones, “It’s not unusual”.

Source: Bloomberg

On Blackouts

Both the WSJ and Bloomberg have run articles this year about the power (or lack thereof) of earnings blackouts.  Both suggest that stock prices can get weak when companies are prevented from purchasing their own stock due to prudence around the possibility (or perception) of trading on insider information.

An astute TPL investor would conclude that buyback blackouts are a big deal for TPL since, well, buybacks are its core competency.

I’m not a statistician, nor do I play one on TV but it does appear to me as if the lack of buybacks is a material driver in month to month price action.  Below is the simple average monthly return of all monthly periods since July 1980.  YTD October 2018 at -8.99% is included as a full month in this analysis.

Note that “blackout” months (my assumption) are highlighted in red and represent 2 of the 4 lowest monthly average returns and 4 of the 6 lowest average monthly returns.  If you consider December a throwaway month (tax planning), the blackout effect gets even stronger.

On the flipside, you really want to own TPL in Feb, May, Aug, and Nov which are the months TPL reports prior quarter earnings.  Reporting is typically very early in the month.  I assume TPL comes out guns blazing after that to do its buying.

monthly average pricing

Source: Bloomberg

Twenty Dollars Wide

TPL markets are current 100 shares up at $840/$860.  Bid/ask is 2.4% of the bid side.  Don’t fat finger a trade or it will cost you the annual yield of a short Treasury to get out!

No prints over 100 shares today so the reported price hasn’t moved.  Just one of those days I guess.

If there was an argument for a split this is it.  That said, I don’t see anything in trust docs that call for it to care about secondary liquidity.

20points

source: Bloomberg

Shares repurchases declining

shares out and change

I realize I’m jumping around.  But if you know TPL, you know that it is a trust that was designed to self liquidate.  The trust generally (not always!) applies marginal free cash flow to the repurchase of shares.

As shown above, the outstanding float of shares has decreased by over 50% since 1992.  On average, the trust repurchases 0.72% of itself every quarter.  This may seem like a large number but you have to consider that the 0.72% average is applied to an ever shrinking base.

As we can see by the trend of the orange line (% shares repurchased/quarter), recent repurchases are lower than average.  Ardent followers of TPL will know that this is due to the shares simply getting more expensive.  And when I say expensive, I mean expensive outright and as a % of top line revenue and net income (more on that another day).