SandRidge Permian Trust :PER-US: Earnings Analysis: Q3, 2017 By the Numbers : December 14, 2017

SandRidge Permian Trust reports financial results for the quarter ended September 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 7.21 million, Net Earnings of USD 6.21 million.
  • Gross margins narrowed from 99.76% to 95.03% compared to the same period last year, operating (EBITDA) margins now 86.13% from 88.42%.
  • Narrowing of operating margins contributed to decline in earnings.

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

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 7.21 7.84 7.24 7.68 7.14
Revenue Growth (%YOY) 0.92 30.67 -20.02 -32.82 -43.38
Earnings (mil) 6.21 6.83 6.33 7.03 6.32
Earnings Growth (%YOY) -1.69 43.63 -16.15 -28.66 -55.2
Net Margin (%) 86.13 87.19 87.4 91.51 88.42
EPS 0.12 0.13 0.12 0.13 0.12
Return on Equity (%) 4.73 5.08 4.58 4.93 4.3
Return on Assets (%) 18.92 20.34 18.31 19.72 17.2

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, PER-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if PER-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -8.00% and earnings by -9.12% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 99.76% to 95.03%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 88.42% to 86.13% in this time frame. For comparison, gross margins were 95.04% and EBITDA margins were 87.19% in the previous period.

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

PER-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 33.51 days from 39.75 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 88.42% to 86.13% and (2) one-time items that contributed to a decrease in pretax margins from 88.42% to 86.13%

EBIT Margin History
PreTax Margin History

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Company Profile

SandRidge Permian Trust is a statutory trust, which engages in acquiring and holding royalty interests in specified oil and natural gas properties. The company was founded on May 12, 2011 and is headquartered in Austin, TX.

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