Spark of an Idea

Over the holiday weekend a friend and I were enjoying an adult beverage (s) and talking up what else?  Business and Entrepreneurship of course.  My friend pointed out to me a new company seeking funding via Kick StarterSpark.  The idea behind Spark is pure genius.  This product connects all your lights to your smart phone, tablet, or computer via WIFI Internet.  Enabling the user to turn on, turn off, dim, or adjust light settings from anywhere in the world.

This follows our entrepreneurship them of finding a niche, providing consumers a product / service they never knew they needed, and executing the business plan.  Spark is currently in the process of raising $250K for development of the Spark project.  For $59 you can become a backer and receive a Spark when it rolls off the assembly line in July 2013.  See the video from the company founder for a great 3 minute introduction to the product.

Spark has opened up the development of Apps to any code writers that can come up with the best way to use the product.  This is obviously entrepreneurial of Spark, but also increases the chances of developers finding interesting ways to use Spark, and potentially drive sales longer term.

Christmas Comes Early to Dividend Lovers

Yesterday Anadarko Petroleum ($APC) filed an S-1 registration statement to take the General Partner of Western Gas Partners $WES public.  The GP will be named Western Gas Equity Partners, LP and trade under the ticker $WGP.  $WGP will own the 2% GP interest in $WES, all of the Incentive Distribution Rights (IDR’s), and a 47% limited partner interest in $WES.  Basically the GP’s only asset will be its investment in $WES and its preferential right to a larger portion of the cash distributed.

This is a great potential long term investment for those yield hungry investors.  $WES is only 5 years old and $APC has billions in midstream assets for potential drop drowns, which 2013/2014 could see significant growth in distributions.  The table below represents the “hypothetical” distributions for $WGP over the next six years.  Basically this table tells investors you can buy $WGP and if management executes on the plan in the next six years we plan to increase distributions by 60%.  That does not include the likely rise in the equity value of $WGP as the units increase in value in harmony with distribution growth.  Of course no one can predict what will happen in six years, but this is pretty good picture for investors to knaw on.

S-1 Projected Growth of $WES Distribution: LP & GP Portion

The only downside in my view in this announcement is that $WGP is not a C-Corp or an LLC, but rather an LP.  This means the owners of the GP will also receive a K-1 at year end for tax purposes, instead of the simpler 1099-DIV.  $KMI, $WMB, and $SEMG chose the C-Corp route for GP ownership.  The C-Corp route is preferred by institutional investors and friendly to tax deferred accounts.

$WGP should be a great investment for yield investors, but after last nights US election all investment decisions should be re-evaluated.  The US is likely to go over the fiscal cliff, receive another downgrade from rating agencies, and face a shrinking GDP.  All of those factors are recipe for a recession and likely put pressure on equity values in the short-medium-long term time period.

Entreprenuer: GoGo SqueeZ

I am constantly amazed by entrepreneurs that find a niche that serves a need the market never even knew that it wanted.  Last night on Twitter I ran across a Forbes article on GoGo SqueeZ.  This company markets crushed apples in a package that you can eat right out of the package and charges a huge premium.  Then they also manufacture the product in a 100% natural, gluten free, BPA packaging free, wheat free, vegan friendly, no fructose corn syrup way that makes you feel like paying that “organic” type of premium is justified.  The product is flying off the shelves, growing top line revenue from just $6 million two years ago to over $100 million a year.  I have no idea how many 3.2 ounce individual packages that would be, but my guess is a lot, like millions per year.   

This is one of those ideas that after you see the success you say, “why didn’t I think of that?!?@#$ %*&%^!!!”  Truly amazing story and an example of how the market can constantly be re-invented when entrepreneurs develop products that consumers never knew they could not live without.

Like all good start-ups (and well run businesses in general) GoGo SqueeZ followed its strategy:

1.  Identify the Niche

2.  Exploit the Niche

3.  Constantly Meet & Exceed your clients expectations

4.  Execute, Execute, Execute

Bravo GoGo SqueeZ, Bravo.

Uinta Basin: Valuation Reset

On November 1, Canadian E&P Crescent Point Energy announced an $861 million acquisition of Ute Energy’s Central Basin (CB) assets in Utah.  This represents Crescents first entry into the basin, and really its first entry deep into the US.  This transaction provides a good valuation reset for other operators in the area:  $BBG, $BRY, and $NFX.  Current Ute production is 7,800 boepd, and when you back out the $700 per acre placed on the acreage, they are paying $124K per producing barrel. 

Crescent Point Energy Operating Areas

Crescent is an E&P that falls under the radar since it only trades on the Toronto Stock Exchange, and has typically only operated in Canada.  However, it pays a hefty $.23 cents per month dividend, which at today’s price of $39.62 produces an annual yield of 6.9%.  The company has low leverage as well with just 10% debt-cap.  The bountiful dividend and monthly payout (think compounded re-investments [12 instead of typical 4]) are attractive, but the Canadians take out 15% for dividend taxes and you end up paying higher commissions to buy on the TSX.  Still, not a bad stock to add to the shopping list if the dividend where to creep higher. 

Bottom line on Uinta: 

  • Valuation has been reset with this M&A deal
  • Interesting to see if CB shale oil / horizontal drilling can become economic
  • Look for other larger independents to enter the play if successfull

NYSE: Got BCP?

Super hurricane Sandy wiped out most of the tri-state area last week.  Causing billions of dollars in damages and crippling business.  Whenever storms such as Sandy appear institutions rush to implement their Disaster Recovery Programs, or Business Continuity Plans (BCP).  The NYSE Euronext may have to dust off their BCP plan to be more prepared for the next Sandy.  Wikipedia defines a BCP as:

“identifies an organization’s exposure to internal and external threats and synthesizes hard and soft assets to provide effective prevention and recovery for the organization, while maintaining competitive advantage and value system integrity”

In this age of technology and redundancy planning shouldn’t the NYSE have plans in place to operate at another location?  If the NYSE completes 1 billion trades a day and they earn $.01 per trade that costs shareholders $10 million per day in lost revenue.  I understand that traders and other market makers need to be present for the exchange to function properly, but somewhere along the line the BCP failed for NYSE.  Why not pull all “critical personnel” out to Chicago a week prior to the storm? 

I understand this storm was devastating, but $NYX board members should be asking some tough questions to management.