Hi-Crush Update - Dec 27

[dan_s]

An updated profile for HCLP is now available on the EPG website.

My valuation of $19.25 is lower than the valuation I put on it back in September, just because there is no reason to be so far above the Wall Street Gang valuations.
I do think HCLP has a lot more upside for us if this happens:
1. Q4 results beat my forecast, which is possible since First Call's earnings forecast is higher than mine.
2. They are aggressive in their unit buyback program. This also takes a lot of risk out of owning the units.
3. Guidance for 2018 matches up with my forecast. This is likely because First Call's forecast for 2018 is higher than mine.

Hi-Crush is now generating a lot of FREE CASH FLOW; over $40 million per quarter. My 2018 forecast is that the Partnership will generate more distributable cash flow than it did in 2014 when the unit price spiked up to near $70.

BTW their current quarterly distribution is less than $14 million per quarter.

[dan_s]

Take a look at HCLP's 52-week trading range. This company is in MUCH BETTER shape today than it was a year ago.

[ddlopata084]

Dan - do you have a view on Atlas Sand and their ability to bring on the 6 mmtpy 2018 and then 12 mmtpy in 2019, with claims to have the ability to extend to 24 mmtpy beyond 2020. This was announced on Dec 19th in a press release and surprised a number of analysts. This dwarfs HCLP’s Kermit with nameplate 3 mmtpy. I know HiCrush speaks to it briefly in their slide set and also on their last call. This is the key point that has driven/held HiCrush stock for now - a number of analysts’ reports I have read use the looming oversupply and supply side as an argument or risk factor and continued justification for $10 stock price target - I.e. oversupply in Permian with local sand and decreased value in Wisconsin white reserves driving price per ton down...

I personally believe HCLP is in a good position to push their stock price over the next couple years, but supply side is the longer term risk we need to understand. The Permian needs a lot of sand, and growing.

Something to keep an eye on...

[dan_s]

It is going to take an incredible amount of high quality frac sand just to maintain U.S. oil and gas production at current levels.

There is always going to be competition in any business that has such a bright future.

Altas is a private company, which BTW begs the question: Why is a private company putting out press releases?

It is very difficult for new oilfield service companies to compete with companies that have established relationships with the upstream companies. Hi-Crush is the low-cost producer of frac sand and they have established a fantastic distribution system. If Altas gets into a pricing war with Hi-Crush to gain market share, guess which one will survive?

In the near-term:
> Hi-Crush is going to report strong financial results for Q4 and Q1.
> They are going to accelerate their unit buyback program. They have already repurchased over 2 million units.
> Distributable Cash Flow s/b over $40 million in Q4 and over $180 million in 2018.
> After the unit buyback program is completed, I am expecting them to increase quarterly distributions (maybe double them).

In December, five Wall Street analysts put out reports on Hi-Crush. Their valuations range from $11.75 to $17.00. My SWAG is that their valuations will go up after Q4 results come out.