Source Article
Green energy plans in disarray as wind farm giant slashes investment | business.timesonline.co.uk (article)
Implications:
1) Alternative Energy is not able to compete with "Cheap" oil at this time.
2) Wind and Solar may be able to compete before Biofuels for Transport
3) There is no way to Project Competing Energy (Hydrocarbon) Costs reliably for the length of investment needed for Alternative Energy Infrastructure.
4) Government programs guaranteeing "Floor" pricing for alternatives and renewables only way to attract investment capital
Analysis:
The "Green Energy" movement - Renewables, Biofuels and oil substitutes like ethanol, are subject to energy market price volatility as a whole, and compete for capital with other energy projects.
The rapid spike and decline in oil prices over the last 18 months has shown that there is very little elasticity of demand for hydrocarbon-based energy. The infrastructure the world has invested in for the past 100+ years is based on the availability of hydrocarbon fuels (Coal, Natural gas, and Crude Oil derived refined products) as the primary energy source.
As long as the emerging "Green" energy sources cannot be guaranteed a "floor" price where government will make up the difference between production and market costs while the industry matures and is able to become competitive in the global energy free market, there will be very little incentive for private(NYSE:BBY) investment in these technologies and the infrastructures needed to support them.
The financial collapse of corn-based ethanol producers in the US is a prime example of why alternative and Bio energy will be a hazardous proposition for investors until a way to protect them from the bottom of oil's price swings can be initiated.
Relatively inexpensive oil will always be a threat to Green Energy business plans; they are building against a competitor that has years of investment and operating experience, in addition to loads of capital, with which to compete.
State oil firms pump based on how much cash they need to bring in to support the government that owns them, market lows are of little consequence to their plans. While the State-owned Oilcos love the high prices, the odds of a group of state-owned firms volume discipline being maintained at the expense of a bankrupt government is virtually nil.
The Super Major Multinational privately owned firms have been very selective about competing wit their core hydrocarbons businesses, they understand the economics better than anyone else.
Until some large governments embrace distributed-generation electrical production and the smart grid needed to make that model work, as a national security priority, the odds of significant amounts of electricity being produced by "Green" means is very slim indeed.
Biofuels for transport face an even tougher uphill fight without help to get the industry off the ground
Showing posts with label Operating Models. Show all posts
Showing posts with label Operating Models. Show all posts
Monday, March 30, 2009
Consolidation of Mid-Size Oil Firms is Sign of Current Market Conditions
Source Article: Suncor's Petro-Canada bid may spur more deals | www.reuters.com (article)
Implications:
1) Suncor(TSX:SU)/Petro-Canada(TSX:PCA) combination makes for stronger single entity
2) Merger will make access to capital easier- Oil sands are expensive development prospect through to production.
3) Creates a firm with broad interests and verticle integration
4) Other mergers are going to occur in "Mid-Major" firms, and not be limited by national borders
5) State Oil firms may look to reach out to create "hybrid" firms across borders like PDVSA-Citgo
Analysis:
Suncor's(TSX:SU) purchase/merger with Petro-Canada(TSX:PCA) makes sense for both the players, and advances Canada's overall energy interests by creating a player with deep pockets and a breadth of resources.
Firms of this size, while large by conventional standards, are dwarfed the Super Major Multinationals like Chevron(NYSE:CVX), ExxonMobil(NYSE:XOM), BP, Royal Dutch Petroleum (Shell(NYSE:RDS/A)(NYSE:RDS/A)) and Total. They compete with these firms for exploration and development properties, in distribution and retail in R & M operations, and for capital on the global lending market.
Bigger, in this business, means real and realized efficiencies of scale, and make economic sense. The combined entity will find access to capital an easier proposition, and be able to expand those savings over the entire range of both firms operations as they combine.
Look for other mergers to occur in Major or Mid-Major Oil firms. The time is right for strong firms to make moves before energy prices head precipitously back up, making the book values of known reserves prohibitively expensive.
The prospect of State-owned oil firms purchasing privately held firms in other markets shouldn't be discounted as a potential play, either.
Had Venezuela's current political posture not come to complicate the situation, the PDVSA-Citgo combination could be a blueprint as how to leverage a nation's natural resources into commercial interests that are far more than trading extracted natural resources for cash.
Implications:
1) Suncor(TSX:SU)/Petro-Canada(TSX:PCA) combination makes for stronger single entity
2) Merger will make access to capital easier- Oil sands are expensive development prospect through to production.
3) Creates a firm with broad interests and verticle integration
4) Other mergers are going to occur in "Mid-Major" firms, and not be limited by national borders
5) State Oil firms may look to reach out to create "hybrid" firms across borders like PDVSA-Citgo
Analysis:
Suncor's(TSX:SU) purchase/merger with Petro-Canada(TSX:PCA) makes sense for both the players, and advances Canada's overall energy interests by creating a player with deep pockets and a breadth of resources.
Firms of this size, while large by conventional standards, are dwarfed the Super Major Multinationals like Chevron(NYSE:CVX), ExxonMobil(NYSE:XOM), BP, Royal Dutch Petroleum (Shell(NYSE:RDS/A)(NYSE:RDS/A)) and Total. They compete with these firms for exploration and development properties, in distribution and retail in R & M operations, and for capital on the global lending market.
Bigger, in this business, means real and realized efficiencies of scale, and make economic sense. The combined entity will find access to capital an easier proposition, and be able to expand those savings over the entire range of both firms operations as they combine.
Look for other mergers to occur in Major or Mid-Major Oil firms. The time is right for strong firms to make moves before energy prices head precipitously back up, making the book values of known reserves prohibitively expensive.
The prospect of State-owned oil firms purchasing privately held firms in other markets shouldn't be discounted as a potential play, either.
Had Venezuela's current political posture not come to complicate the situation, the PDVSA-Citgo combination could be a blueprint as how to leverage a nation's natural resources into commercial interests that are far more than trading extracted natural resources for cash.
Monday, November 3, 2008
Buffalo Wild Wings and dineEquity are both being built for the long run
Title: Buffalo Wild Wings and dineEquity are both being built for the long run, but with different operating models.
Ramifications:
1) dineEquity is 6 times larger in location count than Buffalo Wild Wings
2) The two companies aspire to grow earnings in different ways.
3) dineEquity can market across the whole daypart with the brands they own.
dineEquity (DIN) and Buffalo Wild Wings (BWLD) both released third quarter results on October 27th. dineEquity posted a .47/share profit verses a .09/share expected loss, and Buffalo Wild Wings posted .25/share profit, missing the projected earnings by .06/share. We used the two firms Quarterly reports as the basis for our comments
The two companies are not similar in size or makeup, and while they are competitors where Applebee’s and Buffalo Wild Wings restaurants compete in the same market for casual dining dollars, they really market to two separate demographics. The differences are more marked than the similarities.
dineEquity is still consolidating Applebee’s into their operating system, having purchased an entity in Applebee’s that was larger than IHOP. While the wisdom of a massive expansion could be questioned in light of current market conditions, even the most conservative of forecasts missed the magnitude and speed of the slowdown in consumer spending and the dive in consumer confidence that has occurred.
Applebee’s experienced a decrease in same-store revenues, and the company acknowledged that their new value offerings didn’t perform. That’s a marketing/advertising, not an operational or management issue, and can be easily corrected.
IHOP, with several years of brand revitalization under its belt, is a much more capable competitor than they were when the exercise in refranchising and repositioning started. There is no reason to think Applebee’s won’t eventually get down the same track and move dineEquity towards its goal of being 100% franchisee locations. I believe that dineEquity’s management is building a firm for the long run, and will benefit favorably from lower interest rates as their debt instruments mature and are replaced with lower-cost debt. If dineEquity conservatively manages their financial side and continues to retire debt with free cash flows, the outlook continues to get better and better. dineEquity is out to be a marketing and franchisee management firm, creating their earnings through franchise and licensing fees.
Buffalo Wild Wings, on the other hand, experienced excellent same store sales growth, and is buying back franchisee properties as part of a program to expand company revenues and earnings. They obviously feel that their way to increased profits is to become a full line owner and operator, while still actively franchising where the deals make sense.
This is why comparing these stocks requires understanding that while it looks like they share a common operating model within the same consumer space; they are heading in opposite directions in operating structure and philosophy.
dineEquity has a very large unit count, and as it becomes more focused as franchisor/marketer on driving top-line revenues, with the advantage of having the two brands identified with different dayparts for less cannibalism of consumer marketing focus, they are building a system that will allow for ever more efficient use of capital as the Applebee’s company restaurants get moved out to franchisees.
Buffalo Wild Wings is taking the tried and true approach of picking a specific consumer segment and being the best competitor within it. Their management believing they can run restaurants as company ops more profitably than they can as being the franchisor has lead to the “Buy–back” of franchisee units.
Buffalo Wild Wings and dineEquity are two dissimilarly sized firms with completely opposite philosophies of how best to grow their specific companies. In economics, the example of bad analysis is comparing apples to oranges; in this case it would be comparing Applebee’s to Wings.
Ramifications:
1) dineEquity is 6 times larger in location count than Buffalo Wild Wings
2) The two companies aspire to grow earnings in different ways.
3) dineEquity can market across the whole daypart with the brands they own.
dineEquity (DIN) and Buffalo Wild Wings (BWLD) both released third quarter results on October 27th. dineEquity posted a .47/share profit verses a .09/share expected loss, and Buffalo Wild Wings posted .25/share profit, missing the projected earnings by .06/share. We used the two firms Quarterly reports as the basis for our comments
The two companies are not similar in size or makeup, and while they are competitors where Applebee’s and Buffalo Wild Wings restaurants compete in the same market for casual dining dollars, they really market to two separate demographics. The differences are more marked than the similarities.
dineEquity is still consolidating Applebee’s into their operating system, having purchased an entity in Applebee’s that was larger than IHOP. While the wisdom of a massive expansion could be questioned in light of current market conditions, even the most conservative of forecasts missed the magnitude and speed of the slowdown in consumer spending and the dive in consumer confidence that has occurred.
Applebee’s experienced a decrease in same-store revenues, and the company acknowledged that their new value offerings didn’t perform. That’s a marketing/advertising, not an operational or management issue, and can be easily corrected.
IHOP, with several years of brand revitalization under its belt, is a much more capable competitor than they were when the exercise in refranchising and repositioning started. There is no reason to think Applebee’s won’t eventually get down the same track and move dineEquity towards its goal of being 100% franchisee locations. I believe that dineEquity’s management is building a firm for the long run, and will benefit favorably from lower interest rates as their debt instruments mature and are replaced with lower-cost debt. If dineEquity conservatively manages their financial side and continues to retire debt with free cash flows, the outlook continues to get better and better. dineEquity is out to be a marketing and franchisee management firm, creating their earnings through franchise and licensing fees.
Buffalo Wild Wings, on the other hand, experienced excellent same store sales growth, and is buying back franchisee properties as part of a program to expand company revenues and earnings. They obviously feel that their way to increased profits is to become a full line owner and operator, while still actively franchising where the deals make sense.
This is why comparing these stocks requires understanding that while it looks like they share a common operating model within the same consumer space; they are heading in opposite directions in operating structure and philosophy.
dineEquity has a very large unit count, and as it becomes more focused as franchisor/marketer on driving top-line revenues, with the advantage of having the two brands identified with different dayparts for less cannibalism of consumer marketing focus, they are building a system that will allow for ever more efficient use of capital as the Applebee’s company restaurants get moved out to franchisees.
Buffalo Wild Wings is taking the tried and true approach of picking a specific consumer segment and being the best competitor within it. Their management believing they can run restaurants as company ops more profitably than they can as being the franchisor has lead to the “Buy–back” of franchisee units.
Buffalo Wild Wings and dineEquity are two dissimilarly sized firms with completely opposite philosophies of how best to grow their specific companies. In economics, the example of bad analysis is comparing apples to oranges; in this case it would be comparing Applebee’s to Wings.
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