Par Pacific: Energy and Infrastructure Firm with Attractive Assets

Howard Punch of Punch & Associates presented his in-depth investment thesis on Par Pacific Holdings (NYSE: PARR) at Wide-Moat Investing Summit 2018.

Thesis summary:

Par Pacific Holdings is a small-cap energy and infrastructure company. Its strategy is to own and operate assets with attractive competitive positions. The primary operations are refining, logistics and retail assets in Hawaii, Wyoming, and the Pacific Northwest. The commonality between these markets is lower competition and harder to serve areas. The company is underfollowed by Wall Street and insiders own 30+% of the company.

PARR is valued around 8.5x LTM EBITDA, and a high-single digit FCF yield. Based on a mid-cycle refining margin, PARR is valued closer to 7x EBITDA and should generate a 10% FCF yield (at constant stock price). PARR also is a minority owner in a Western-Colorado E&P company that is a “hidden asset” valued at 15+% of PARR’s market cap and could be monetized over the next 12-24 months. The company has a $1.6 billion NOL carryforward, which boosts FCF generation and is an added benefit to the acquisition strategy targeting assets with similar competitive characteristics to the existing portfolio.

The company is undervalued based on the current portfolio, and there is a long runway of high-ROIC opportunities, both organic and through M&A.

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About the instructor:

Howard Punch directs all research and investment initiatives at Punch & Associates. Howard honed his investment management skills the old fashioned way: by making a lot of mistakes. Starting his career in the early 80’s at Merrill Lynch in NYC and then as a retail guy in Minneapolis, it was normal practice to call clients with one stock at a time, state the case for owning it and hope for the best. Win, lose or draw, each pick would have to be re-visited with each client. The end result was a deep respect for risk, a large dose of humility and a risk-averse investment approach that anticipates what could go wrong before fantasizing about what could go right. After spending nearly 19 years at Merrill Lynch, Howard started Punch & Associates in 2002. A hopeless research addict and devout student of behavioral finance, Howard actively researches market anomalies and inefficiencies. Howard resides in Eagan, MN with his wife, Julie. He is a Magna Cum Laude graduate of Carleton College