08-Aug-16
10:10 ET |
SCALP |
ScalpTrader Spec Portfolio: Adding GST Preferreds
• I wanted to point out that this morning I've started scaling into the Preferreds of GST.
• Specifically, I bought GST Pr B (GSTprB 11.83 +0.12).
• This morning, I was catching up on the earnings conf call of GST (0.95 +0.01) from Friday. On the call, co stated that they plan to resume paying distributions on the Preferred stock in April 2017 (using stock instead of cash). According to the company, terms of the Preferred stock require that they resume these payments by using stock as the payment currency four quarters after cash distributions are suspended. Co indicates that it will also pay the accrued distributions in stock as well.
• By my calculations GST's market-cap is just under $100 mln, it's Preferred obligation is approx. $3.6 mln per qtr and accrued distributions will be approx. $2.68 (1 yr of accrued). The current market cap of the company would certainly appear to accommodate the ability to make distributions using stock. Moreover, analysts are suggesting value of the common stock ranging anywhere from $1.50 to $4.00 per share (vs current price of $0.95) depending on its drilling results in the extremely hot STACK formation.
• Par value of these Preferreds is $25.00. I've placed my position into a tax sheltered account to avoid possibly being hit with phantom income on the suspended preferred distributions (on certain suspended preferreds, the IRS will tax you as if you are actually receiving the distributions even though you are not).
• Still a risky, speculative bet. However, I have to admit that I was knocked out of my chair when the co indicated it plans to resume paying distributions in April 2017. Also note that these Preferreds are very thin, so only limit orders should be used if purchasing.
• My plan at this time is to sit on the position and wait for the accrued distributions to be paid before selling. However, it will be important to pay attention to GST's drilling results. The story relies on their ability to prove that their acreage can produce similar results to other wells concentrated more at the center of the STACK play. If they can't deliver the results, then the whole story unravels. If they can deliver, the stock price and Preferred price should be propped up by the possibility of GST being sold to a larger company.
• Note that GST also has a Preferred A (GSTprA 11.00 -0.01). Its dividend is 8.625% vs the 10.75% dividend offered by the Preferred B.
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20-Oct-16
11:46 ET |
SCALP |
ScalpTrader Spec Portfolio Update -- GSTprB: Today's advance puts the position 52% in the money for us (17.95 +3.20)
• Link to initial entry at $11.83.
• At our purchase price, GSTprB yields a whopping 23%. Remember that distributions are currently suspended, but that co has indicated it will resume payments in April 2017 (using stock to make the payments if necessary, which is why the rally in the stock is helping lift the Preferreds).
• Rally comes on news of a joint development/drilling agreement & the $71 mln sale of non-core assets.
• The asset sale will leave co with over $100 mln in cash. The JV is as important as it allows co to further delineate its acreage without stressing the balance sheet.
• The news and rally in the common stock are both positive for our Preferred position.
• If the rally in the common continues, there is a chance the Preferreds could get back into the $20s.
• I'd considered adding the common, GST (1.33 +0.22), to the my Distressed Energy Basket in the $1.10 area, but was concerned about having over-exposure to this name. Also, thought that co might attempt to do a secondary should the share price pop.
• Personally, I'm holding onto 2,000 GSTprB with unrealized capital gains thus far of over $12,000.
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11-Jan-17
09:33 ET |
SCALP |
Spec Portfolio: Locking in profit on GSTprB for 87% (22.11 +3.15)
• Locking in profits on the GSTprB position for 87%.
• As I noted in my pre-mkt comment, co will make deferred distribution payments of $2.24 per share to Preferred holders of record at the close of business Jan 20.
• This is exactly the scenario I was envisioning when putting on the trade Aug 8 at $11.83. The one positive surprise is that GST's banks are allowing co to make the Preferred payments in cash rather than being forced to used the PIK option of paying the distribution in stock (which would weigh on the common stock and make the Preferred stock less attractive).
• Above $22, GSTprB is yielding about 12%. I think fair value on the heels of this distribution payment would be closer to a 14% yield, or approx. $19.00 per share.
• Although the distribution receives more favorable tax treatment than capital gains, since I'm holding the shares in a tax deferred account, it really doesn't matter. As a result, I'm choosing to lock in profits ahead of the distribution into this gap up.
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