Partnering With the Family – Global Partners LP (Ticker: GLP)

Partnering With the Family – Global Partners LP (Ticker: GLP)

My Moves:

I also own GLP Preferred B, which is currently yielding 9.12%

I typically try to write covered calls that are in the money.  However, in this case, I didn’t like the return at the $40 strike and I liked the business enough that I also wrote calls at the money.  If the stock sells off below $45, my goal is to keep rolling options with a $45 strike.

History:

In 1933, in the middle of The Great Depression, Abraham Slivka, opened Slifky’s Reliable Oil Burner Service, starting with a single truck and delivering heating oil to families in Boston. As America turned from coal and other heating sources to heating oil, the company grew. The next generation saw Slifka’s sons, Fred and Richie, expand into wholesale fuel distribution and trading, buying their first terminal in Revere, Massachusetts, and eventually buying and storing heating oil and other products from all over the world. During the 1980s and 1990s, the company expanded into the retail gasoline business with the purchase of several chains throughout the Northeast. In 2005, founder Abraham Slifka’s grandson, Eric Slifka, became President and Chief Executive Officer of Global Partners LP.

Global Partners LP Overview:

The company has three business lines:

1. Supplying gasoline to the 1,7000 gas stations, some of them owned by GLP, as well as owning and operating 341 convenience stores at the gas stations (78% of the gross profit)

2. Wholesale distribution of gasoline and related products (18% of the gross profit)

3. Commercial distribution (3% of the gross profit)

Since we have all been to the gas stations, I assume we can easily visualize almost 80% of this business. 

Financial Overview: 

(1) Dividend CAGR based on the assumed 2024 dividend rate of $2.85

My observations:

● There is some volatility from year to year, but if you zoom out between 2019 and 2023, the business has grown product margin at a 9% CAGR; DCF / Share at 21%, and dividends at 7%

● Short sleeves to short sleeves may be a common cycle in the US, but it looks like this may be the exception to the rule. Erik Slifka, the grandson of the founder, took the helm in 2005 and seems to have done a great job growing the business since he took over. 2023 was to some extent a transformational year for GLP, as they completed an acquisition for $330MM and signed a JV with ExxonMobil to develop gas stations in the Houston area, investing $410MM

● One thing that I don’t fully understand is the dynamics of this business. As per the table above, the volume and number of gas stationed services over the last five years is about the same, and yet the profit margin is up over 50%. The company has provided a graph below in one of their presentations, which shows that they are earning more cents per gallon. I don’t understand the industry dynamics enough to opine, but I assume there is some benefit to vertical integration

Valuation Metrics:

GLP is an MLP.  I think MLPs are one of the best creations of the US tax system as dividends are treated as a return of capital and tax deferred until you sell the stock.  Below are the links if you are interested to read more about MLPs.  I think MLPs don’t get enough respect given their high and often growing dividend yield. There are negative tax consequences of owning MLPS in retirement accounts

IW08MarApr_MasterLimitedPartnerships-reprint.pdf (eipinvestments.com)

Master Limited Partnerships (MLPs) | PIMCO

From the valuation perspective, I think trading at 6.5%-7% yield seems like a reasonable range given the growth profile. 

Musings:

One can probably fill a library with books whose sole purpose is to supposedly teach you to invest like Warren Buffett.  I generally find it very difficult to emulate other investors as I think everyone in the money management game, whether personal or professional, liquid or illiquid has their own style.  I also find the expression that “we learn from our mistakes” difficult to apply to investing possibly since how we invest is driven so much by our personalities and that’s very hard to change.  I can’t say that I have learned nothing from my wrong moves, of course I have, but there are plenty of things, that my logical mind tells me I shouldn’t do, but I do them anyway, mainly because of fear (i.e. selling stocks too early if they dip, because I think the market knows something that I missed).  In any case, where I do think it is possible to emulate Buffett is in which businesses he focuses on.  Most of the businesses that Berkshire owns are “capital intensive” or “balance sheet” heavy businesses; they are either very hard to disintermediate (railroads) or by their nature generate an expected return on equity (utilities and to some extent, insurance companies). There is no question that MLPs, utilities, banks, homebuilders, or insurance companies will not go up 10x in a very short period, like a company that sells software and is infinitely scalable. However, it is simultaneously highly unlikely that you will wake up one morning and someone found a way to store gas without needing storage or run a financial services business without having equity. JP Morgan does not wake up in the morning worried that AI will destroy their business. There will always be an iPhone to replace the much-loved Blackberry, but companies like GLP are less likely to be replaced by a shiny new toy. So I certainly can’t emulate Buffett, but just like him, I understand that 10-15% return per year compounded, accumulates into big numbers in a very reasonable period of time.

Happy Investing,

Sam

 Behind the Curtain: The Story Behind Endgame Mindset Newsletter

After graduating from NYU’s Stern, I started my adult life as an Investment Banker in Lehman Brothers’ Mergers and Acquisitions group. I have spent the majority of my professional career as an investor, investing on behalf of large institutions such as Morgan Stanley, Merrill Lynch, and Bank of America, as well as a private equity fund and helping companies buy other companies.  In my free time, I spend a lot of hours researching stocks.  A lot. It is hard to save your way to retirement without making good investments. 

Recently, I have also started focusing on Covered Calls.  My goal with covered calls in the current rate environment is to generate a 10-12% unlevered return.  In writing this newsletter, I share my analysis and what I own with others, hopefully helping them earn steady and attractive returns as well.

Disclaimer:

Although the information contained in the newsletter is obtained from sources I believe to be reliable, I cannot guarantee its accuracy. Calculations made in this letter are based on my estimates and not only do I make mistakes but actual performance will almost certainly be different from my projections. The opinions expressed in the newsletter are mine and may change without notice. The information in the newsletter may become outdated and I have no obligation to update it. The information in the newsletter is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. It is provided for information purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell, or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor or a group of investors. It should not be assumed that any investments in securities, companies, sectors, or markets identified and described were or will be profitable. I strongly advise you to discuss your investment options with your financial adviser before making any investments, including whether any investment is suitable for your specific needs.

Do your homework before putting money at risk!