BUSINESS
Dorchester Minerals, L.P. engages in the acquisition, ownership, and administration of producing and nonproducing natural gas and crude oil royalty, net profit, and leasehold interests in the United States. Its royalty properties consist of producing and nonproducing mineral, royalty, and overriding royalty interests located in 582 counties and parishes in 26 states; and net profits interests represent net profits overriding royalty interests in various properties owned by the operating partnership. Dorchester Minerals Management LP serves as the general partner of Dorchester Minerals, L.P. The company was founded in 1982 and is based in Dallas, Texas.
INVESTMENT RATING
DMLP is expected to continue to be a major Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Dorchester Minerals has a current Value Trend Rating of C (Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. Dorchester Minerals has a neutral Power Rating of 56 and a neutral Appreciation Score of 58, with the Neutral Value Trend Rating the result.
Dorchester Minerals’ stock is selling well below targeted value. The current stock price of $34.93 compares to targeted value 12 months forward of $57.
This neutral appreciation potential results in an appreciation score of 58 (42% of the universe has greater appreciation potential.)
Dorchester Minerals has a Power Rating of 56. (This neutral Power Rating indicates that DMLP’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Contributing to this neutral Power Rating: recent price action has been slightly favorable. An offsetting factor is the Oil Royalty Traders comparison group is in an extremely unfavorable position currently.
INVESTMENT PROFILE
DMLP’s financial strength is above average. Financial strength rating is 64.
Relative to the S&P 500 Composite, Dorchester Minerals LP has moderate Growth characteristics; its appeal is likely to be to Income-oriented investors; the perception is that DMLP is normal risk. All factors are relative strengths. DMLP’s valuation is low: high dividend yield, low P/E ratio, and high price/book ratio. DMLP has unusually low market capitalization.
CURRENT SIGNALS
Dorchester Minerals’ current operations are strong. Return on equity is rising, reflecting: and improving asset utilization.
Dorchester Minerals’ current technical position is very strong. The stock price is in a 18.7 month up move. The stock has appreciated 48.6% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Positive development: significant quarterly earnings acceleration occurred. Negative development: significant quarterly sales deceleration occurred.
The stock is currently rated C.
Dorchester Minerals LP (NASDAQ: DMLP) stock declined slightly by -0.9% on 4/5/24. The stock closed at $34.93. Trading volume in this decline was normal. The stock has been strong relative to the market over the last nine months and has risen 2.8% during the last week.
CASH FLOW
In 2023, Dorchester Minerals LP generated a significant increase in cash of +$6.3 million (+15%). Sources of cash were larger than uses. Cash generated from 2023 EBITDA totaled +$141.6 million. Non-operating uses consumed -$1.2 million (-1% of EBITDA). In 2023, there were no cash taxes paid. Re-investment in the business amounted to -$33.8 million (-24% of EBITDA). On a net basis, debt investors withdrew -$0.3 million (-0% of EBITDA) while equity investors removed -$100.1 million (-71% of EBITDA).
DMLP’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Dorchester Minerals Lp Peer Group as well. In most years, Dorchester Minerals LP was in the second quartile and third quartile. Currently, Dorchester Minerals LP is slightly below median at -1% of EBITDA (-$1.2 million).
DMLP’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Dorchester Minerals Lp Peer Group as well. In most years, Dorchester Minerals LP was in the top quartile. Currently, Dorchester Minerals LP is upper quartile at 0% of EBITDA ( $0.0 million).
DMLP’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Dorchester Minerals Lp Peer Group. In most years, Dorchester Minerals LP was in the second quartile and lower quartile. Currently, Dorchester Minerals LP is above median at -24% of EBITDA (-$33.8 million).
DMLP’s Debt Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Dorchester Minerals Lp Peer Group as well. In most years, Dorchester Minerals LP was in the second quartile and top quartile. Currently, Dorchester Minerals LP is above median at -0% of EBITDA (-$0.3 million).
DMLP’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Dorchester Minerals Lp Peer Group. In most years, Dorchester Minerals LP was in the third quartile and second quartile. Currently, Dorchester Minerals LP is substantially below median at -71% of EBITDA (-$100.1 million).
DMLP’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Dorchester Minerals Lp Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Dorchester Minerals LP was in the second quartile and third quartile. Currently, Dorchester Minerals LP is above median at +4% of EBITDA (+$6.3 million).
DMLP’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Dorchester Minerals Lp Peer Group. In most years, Dorchester Minerals LP was in the third quartile and lower quartile. Currently, Dorchester Minerals LP is slightly below median at +29%.
PROFITABILITY
DMLP’s return on equity has improved very significantly since 2014. The current level of 61.5% is 1.31X the low for the period and is -1.1% from the high.
This very significant improvement was due to very strong positive trend in pretax operating return and little change in non-operating factors.
The productivity of DMLP’s assets rose over the full period 2014-2023: asset turnover has enjoyed a very strong overall uptrend that sharply accelerated after the 2020 level.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated from the 2020 level.
Non-operating factors (income taxes and financial leverage) had little influence on return on equity.
DMLP’s return on equity is at the upper quartile (61.5%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (59.7%) reflecting asset turnover that is upper quartile (0.86X) and upper quartile pretax margin (69.7%).
Tax “keep” rate (income tax management) is upper quartile (100.0%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.03X).
GROWTH RATES
There are no significant differences between Dorchester Minerals LP’s longer term growth and growth in recent years.
Dorchester Minerals LP’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 13.0% per year. (More recently it has been 34.3%.)
Total asset growth has been 7.8% per year. (More recently it has been 18.5%.)
Annual E.P.S. growth has been 15.7% per year. (More recently it has been 41.7%.)
Equity growth has been 7.5% per year. (More recently it has been 18.9%.)
No consensus growth rate forecast is available for Dorchester Minerals LP.
Relative to the Dorchester Minerals Lp Peer Group, Dorchester Minerals LP’s historical growth measures are erratic. Revenue growth (13.0%) has been at the upper quartile. E.P.S. growth (15.7%) has been at the upper quartile. Equity growth (7.5%) has been at the upper quartile. Total asset growth (7.8%) has been at median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Dorchester Minerals LP’s stock price performance has been variable and significantly below market. Between June, 2013 and April, 2024, Dorchester Minerals LP’s stock price rose +43%; relative to the market, this was a -56% loss. Significant price moves during the period: 1) October, 2020 – May, 2022: +207%; 2) December, 2019 – March, 2020: -52%; and 3) July, 2014 – February, 2016: -72%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 12.6% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 12.6% is slightly above median relative to Dorchester Minerals LP Peer Group.
Current 5-year total return performance of 24.4% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 24.4% relative to S&P 500 Composite, Dorchester Minerals LP’s total return performance is above median relative to Dorchester Minerals LP Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, DMLP’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is upper quartile. Price/equity ratio is upper quartile. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Relative to Dorchester Minerals LP Peer Group, DMLP’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is upper quartile. Ratio of enterprise value/revenue is above median. Price/equity ratio is at median. Price/earnings ratio is at the lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is below median.
Dorchester Minerals LP has a large value gap compared to the median. For DMLP to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 8.45X to 6.87X. If DMLP’s ratio of enterprise value/revenue were to fall to 6.87X, its stock price would be lower by $-7 to $28.
For DMLP to achieve upper quartile valuation relative to the Dorchester Minerals LP Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 8.45X to 10.18X. If DMLP’s ratio of enterprise value/revenue were to rise to 10.18X, its stock price would increase by $7 from the current level of $35.
VALUE TARGETS
DMLP is expected to continue to be a major Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Dorchester Minerals LP’s current Price Target of $54 represents a +56% change from the current price of $34.93.
This neutral appreciation potential results in an appreciation score of 58 (42% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 58, the neutral Power Rating of 56 contributes to an Value Trend Rating of C.
Dorchester Minerals LP’s current Price Target is $54 (-26% from the 2023 Target of $73 but +56% from the 04/05/24 price of $34.93). This fall in the Target is the result of a +13% increase in the equity base and a -34% decrease in the price/equity multiple. The forecasted decline in growth has a very large negative impact on the price/equity multiple and the forecasted decline in return on equity has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a slight positive impact.
PTR’s return on equity forecast is 53.2% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2015 low of 25%.
PTR’s growth forecast is 11.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2019 and 2023. The current forecast is well above the 2020 low of 2%.
PTR’s cost of equity forecast is 15.2% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2015 and 2023. The current forecast is above the 2017 low of 11.7%.
At Dorchester Minerals LP’s current price of $34.93, investors are placing a positive value of $17 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 17.0% per year, and a return on equity of 62.2% versus a cost of equity of 15.8%.
PTR’s 2025 Price Target of $54 is based on these forecasts and reflects an estimated value of existing assets of $19 and a value of future investments of $35.
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