Pitch: ALJ
17
(NYSE: ALJ)
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Transcript of Pitch: ALJ
MATADORINVESTMENTS
ANN CAI • NIRAJ PAREKH • MATTHEW RINDELAUB • ANDREW SMITH
(NYSE: ALJ)
Investment Thesis
1. Undervaluation – Intrinsic & Relative Undervaluation
2. Tax Advantage (MLP)
3. Strategic Placement
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Investment Strategy
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Time Horizon: One year
Buy at current market price: $11.49
Stop-Loss at 20%: $9.19
Exit on oil price or technicals
Company Overview
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Alon USA Energy, Inc.Alon USA Partners, LP
Master Limited Partnership (MLP)
• Tax Shield
• Lower cost of capital
OPERATIONS
Operations Divider Slide
Operational Divisions
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{As a percentage of 2012 revenue}
Refining (81.15%)
• Paramount, CA
• Long Beach, CA
• Bakersfield, CA
• Krotz Springs, LA
• Big Spring, TX
- Fuels marketed to 640 stations under Alon- 21 third-party distributions
Asphalt (7.53%)
• 2nd Largest Supplier for TX, CA
Retail and Branded Marketing (11.31%)
• Owns 298 locations
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Gross Margin
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Big Spring
60%
Krotz Springs
22%
California
1%
Asphalt
4%
Retail
13%Total Daily Production: 250,000 barrels/day
California
(combined):
70,000
Krotz Springs:
74,000
Big Spring:
70,000
Big Spring:53% Gasoline
32.5% Jet Fuel & Distillates5.9% Asphalt
STRATEGY
Strategy Divider Slide
Porter’s Five Forces
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Rivalry
Threat of Entrants
Buyer Bargaining
Power
Supplier Bargaining
Power
Threat of Substitutes
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Strategic Positioning
1. Big Spring Refinery
- Midland Locational Advantage
- Inexpensive Sour Crude Refining
Technology
2. Diversification
- C-Store Revenue Streams
- California Refineries
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Risks & Mitigation
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Volatility of Crude
Prices
Single Refinery = 60%
of Gross Margin
Largest Supplier &
Customer is J. Aron
• Continuing dominance of
crude over NG
• Large enough discount
margin
• Past performance
• Extensive maintenance
performed as recently as
2011
• J. Aron is fully owned by
Goldman Sachs
• Supply risk is alleviated by
Permian Basin expansion
FINANCIALS
Financials Divider Slide
Comparables
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0.0x
5.0x
10.0x
15.0x
20.0x
CVI HFC MRO VLO WNR ALJ
Market Cap/Levered FCF
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
CVI HFC MRO TSO VLO WNR ALJ
P/TangBV
0.0x
5.0x
10.0x
15.0x
20.0x
CVI HFC MRO TSO VLO WNR ALJ
P/E
0.0x
2.0x
4.0x
6.0x
8.0x
CVI HFC MRO TSO VLO WNR ALJ
TEV/EBIT
Comparables
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CVI HFC MRO VLO WNR ALJ
TEV/Unlevered FCF 6.1x 5.4x 19.2x 11.6x 5.3x 3.9x
Mkt Cap/Levered FCF 6.0x 5.9x 17.0x 10.5x 5.2x 2.6x
CVI HFC MRO TSO VLO WNR ALJ
TEV/Revenues 0.4x 0.4x 1.9x 0.3x 0.2x 0.3x 0.2x
TEV/EBITDA 2.7x 2.8x 3.1x 5.6x 3.8x 3.1x 2.4x
TEV/EBIT 3.0x 3.1x 4.7x 6.8x 4.7x 3.4x 3.2x
P/E 5.8x 5.5x 15.6x 9.9x 7.4x 7.7x 5.2x
P/TangBV 2.7x 2.3x 1.3x 1.5x 1.1x 3.0x 1.3x
Companies Ticker:
Alon USA Energy, Inc. ALJ
CVR Energy, Inc. CVI
HollyFrontier Corporation HFC
Marathon Oil Corporation MRO
Tesoro Corporation TSO
Valero Energy Corporation VLO
Western Refining, Inc. WNR
ALJ Median Implied Price
TEV/Revenues 0.20x 0.30x $ 17.24
TEV/EBITDA 2.40x 3.10x $ 14.84
TEV/EBIT 3.20x 3.40x $ 12.21
P/E 5.20x 7.40x $ 16.35
P/TangBV 1.30x 1.50x $ 13.26
TEV/Unlevered FCF 3.90x 5.75x $ 16.94
Mkt Cap/Levered FCF 2.60x 5.95x $ 26.29
Average Implied Price: $ 16.73
ALJ Current Price: $ 11.49
Discount: 46%
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Discounted Cash Flow
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Financial Analysis
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MATADORINVESTMENTSQUESTIONS
