A few weeks back, I posted “Weekend thoughts: the less efficient market, part 1” in response to a bunch of thoughts I had after reading Cliff Asness’s the less effecient market. Today’s post is, of course, the part 2 to that piece.
You comment about capex and investment in the ground got me thinking about a comment from Opal fuels last earnings call:
"one of the beautiful things about our business is after we build these facilities, unlike a traditional energy company, we don't have to drill or spend capital to produce our fuel, right? If you remember what we do, we drop PVC pipes into landfills and they have perforations and we connect them all together, and we apply a little bit of suction to gather all that gas to our facilities. And the facilities themselves, if you look across the portfolio where it sits today, it's in the single-digit millions of maintenance CapEx, and these are 20-25-year assets, and some of our gas rights even go out longer.
So when you really think about us and the valuation of OPAL Fuels, our discretionary free cash flow after we build these facilities is really pretty phenomenal. And that discretionary free cash flow can be used to invest in new projects and that's what we're doing today because we still see really attractive opportunities to grow the business. And in the future, you've got other things you could be doing with that discretionary free cash flow, you could make acquisitions, you could pay a really healthy dividend. There's all sorts of things that we think can be a powerful shareholder value driving tool. And I think we're going to get back into that and start illustrating to folks not only is this really -- are we growing extraordinarily quickly from an adjusted EBITDA perspective, but that adjusted EBITDA translates into discretionary free cash flow to enhance shareholder value."
I wonder if RNG can be a thing given the D3 RIN pricing and possible leverage to nat gas prices.
My favorite thesis right now is the same as the one detailed here, but with one twist: I think the ports and air cargo operators in Vietnam are not pricing in just how massive the capex investments that other companies are making and have recently made in the country.
As these factories continue to come online, and as the products they produce make their way out of the country, these businesses (which already boast roughly 70% net profit margins) are going to absolutely gush money and, if history is any guide, pay most all of it back to shareholders right away.
You comment about capex and investment in the ground got me thinking about a comment from Opal fuels last earnings call:
"one of the beautiful things about our business is after we build these facilities, unlike a traditional energy company, we don't have to drill or spend capital to produce our fuel, right? If you remember what we do, we drop PVC pipes into landfills and they have perforations and we connect them all together, and we apply a little bit of suction to gather all that gas to our facilities. And the facilities themselves, if you look across the portfolio where it sits today, it's in the single-digit millions of maintenance CapEx, and these are 20-25-year assets, and some of our gas rights even go out longer.
So when you really think about us and the valuation of OPAL Fuels, our discretionary free cash flow after we build these facilities is really pretty phenomenal. And that discretionary free cash flow can be used to invest in new projects and that's what we're doing today because we still see really attractive opportunities to grow the business. And in the future, you've got other things you could be doing with that discretionary free cash flow, you could make acquisitions, you could pay a really healthy dividend. There's all sorts of things that we think can be a powerful shareholder value driving tool. And I think we're going to get back into that and start illustrating to folks not only is this really -- are we growing extraordinarily quickly from an adjusted EBITDA perspective, but that adjusted EBITDA translates into discretionary free cash flow to enhance shareholder value."
I wonder if RNG can be a thing given the D3 RIN pricing and possible leverage to nat gas prices.
really interesting; thnaks
My favorite thesis right now is the same as the one detailed here, but with one twist: I think the ports and air cargo operators in Vietnam are not pricing in just how massive the capex investments that other companies are making and have recently made in the country.
As these factories continue to come online, and as the products they produce make their way out of the country, these businesses (which already boast roughly 70% net profit margins) are going to absolutely gush money and, if history is any guide, pay most all of it back to shareholders right away.
META getting penalized for Reality Labs is an example of the latter. You can trace the evolution of the long thesis from:
1. There are no limits to how much capital Zuck will set on fire; to
2. Maybe there are some limits; to
3. Maybe shareholders will eventually see some return from all this "investment".
At some point the thesis may become:
1. Shareholders will earn a reasonable return; to
2. Wait, Zuck just created the iPhone of AI.