Dorchester Minerals LP :DMLP-US: Earnings Analysis: 2016 By the Numbers : March 10, 2017

Dorchester Minerals LP reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Dorchester Minerals LP – North European Oil Royalty Trust and Panhandle Oil and Gas Inc. Class A (NRT-US and PHX-US) that have also reported for this period.

Highlights

  • Gross margins widened from 57.17% to 69.11% compared to the same period last year, operating (EBITDA) margins now 78.48% from 73.18%.
  • Year-on-year change in operating cash flow of 2.12% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 37.56 31.86 65.17 65.87 63.2
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 20.23 12.74 43.65 42.08 36.68
Earnings Growth (YOY) 58.77 -70.81 3.73 14.71 -10.22
Net Margin 53.87 39.99 66.97 63.88 58.03
EPS 0.66 0.42 1.42 1.37 1.2
Return on Equity 28.88 15.02 41.9 35.8 27.64
Return on Assets 28.71 14.88 41.51 35.57 27.52

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 57.17% to 69.11% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 73.18% to 78.48% compared to the same period last year. For comparison, gross margins were 57.17% and EBITDA margins were 73.18% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

DMLP-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 129.93 days from 216.08 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

DMLP-US‘s change in operating cash flow of 2.12% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 41.58% to 55.83% and (2) one-time items. The company’s pretax margins are now 55.83% compared to 41.60% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Dorchester Minerals LP owns producing and non producing crude oil and natural gas mineral, royalty, overriding royalty and leasehold interests. The company was founded in December 2001 and is headquartered in Dallas, TX.

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