Sandridge Mississippian Trust I :SDT-US: Earnings Analysis: Q2, 2017 By the Numbers : September 15, 2017

Sandridge Mississippian Trust I reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Sandridge Mississippian Trust I – Viper Energy Partners LP, TransGlobe Energy Corporation and Canacol Energy Ltd. (VNOM-US, TGA-US and CNNEF-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2.72 million, Net Earnings of USD 1.96 million.
  • Gross margins narrowed from 86.89% to 86.19% compared to the same period last year, operating (EBITDA) margins now 71.98% from 62.72%.
  • Earnings declined although operating margins improved from 62.72% to 71.98%.

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

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 2.72 2.27 2.25 1.86 1.9
Revenue Growth (%YOY) 43.02 -9.5 -26.91 -43.86 -53.26
Earnings (mil) 1.96 1.53 1.52 1.15 3.88
Earnings Growth (%YOY) -49.57 -82.49 -82.19 -86.31 -58.14
Net Margin (%) 71.98 67.27 67.45 61.91 204.16
EPS 0.07 0.05 0.05 0.04 0.14
Return on Equity (%) 6.24 4.75 4.61 2.11 5.03
Return on Assets (%) 24.97 18.98 18.43 8.42 20.11

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Market Share Versus Profits

Revenues History
Earnings History

SDT-US‘s change in revenue this period compared to the same period last year of 43.02% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SDT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 19.81% and earnings by 28.20% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 86.89% to 86.19%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from 62.72% to 71.98%. For comparison purposes, gross margins were 84.30% and EBITDA margins were 67.27% in the previous 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

SDT-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now 66.98 days from 88.01 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 62.72% to 71.98%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 204.16% to 71.98%.

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

Sandridge Mississippian Trust I is a statutory trust. It owns royalty interests in oil and natural gas properties in the Mississippian formation in Alfalfa, Garfield, Grant and Woods counties in Oklahoma and is entitled to receive proceeds from the sale of production attributable to the royalty interests. The company was founded on December 30, 2010 and is headquartered in Austin, TX.

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