Texas Pacific Land Corp. (NYSE:TPL)

This analysis reviews the financial performance and investment efficiency over the five-year period ending December 31, 2023.

Net Operating Profit After Taxes (NOPAT)

The NOPAT experienced significant fluctuations during the period. Starting at 348,876 thousand US dollars in 2019, it dropped sharply to 182,624 thousand in 2020, indicating a notable decline in profitability. However, it rebounded in 2021 with 267,856 thousand and climbed further to its highest value of 444,863 thousand in 2022, reflecting a strong recovery and improved operational performance. In 2023, NOPAT decreased moderately to 389,641 thousand, suggesting some profit pressure or changes in operating conditions but still remaining strong compared to the earlier years.

Invested Capital

The invested capital shows a consistent upward trend throughout the period. Beginning at 575,173 thousand US dollars in 2019, it slightly decreased to 555,694 thousand in 2020, possibly due to divestments or reduced investment activities during that year. From 2021 onwards, invested capital grew steadily, reaching 718,143 thousand in 2021, 840,706 thousand in 2022, and substantially increasing to 1,117,290 thousand in 2023. This upward trend highlights ongoing capital commitment and growth initiatives over the latter years.

Return on Invested Capital (ROIC)

The ROIC exhibits a volatile pattern reflecting the interplay between profitability and capital investment. It started very high at 60.66% in 2019, signaling excellent capital efficiency. The ratio then fell sharply to 32.86% in 2020, aligned with the substantial profit decrease and a slight reduction in capital. Moderate recovery was seen in 2021 with an ROIC of 37.3%, followed by a significant improvement to 52.92% in 2022, coinciding with peak profitability. However, in 2023, ROIC declined to 34.87%, which may reveal diminishing returns on the increased capital base despite a still robust profit level.

Overall, the data reflects a company that faced profit challenges in 2020 but subsequently increased invested capital and achieved notable profit growth through 2022. The declining ROIC in 2023 deserves attention as it may indicate the need to optimize capital deployment or address operational inefficiencies to sustain high returns amidst growing investment.

The analysis of the annual financial data reveals several key trends in the company's performance metrics over the five-year period from 2019 to 2023.

Operating Profit Margin (OPM)

The operating profit margin shows fluctuations throughout the period. It started at a high level of 82.18% in 2019, decreased to 73.44% in 2020, rebounded to 80.42% in 2021, peaked again at 84.38% in 2022, and declined to 77.61% in 2023. This indicates some variability in operational efficiency and profitability, with the margin generally remaining strong but exhibiting some downward pressure in the most recent year.

Turnover of Capital (TO)

The turnover of capital ratio shows a decline from 0.86 in 2019 to a trough of 0.56 in 2020, followed by a modest recovery to 0.63 in 2021, reaching 0.80 in 2022 before decreasing again to 0.57 in 2023. This suggests a reduction in the efficiency with which the company is utilizing its capital to generate sales, particularly notable in 2020 and again in 2023.

1 – Effective Cash Tax Rate (CTR)

This measure declined from 85.85% in 2019 to 74.17% in 2021, indicating an increase in the effective cash tax rate during this period. After 2021, it improved slightly but remained relatively stable at about 78.8% in 2022 and 2023. The trend suggests some variations in tax efficiency or tax planning outcomes over time.

Return on Invested Capital (ROIC)

The return on invested capital experienced a significant decrease from 60.66% in 2019 to 32.86% in 2020, followed by a gradual increase to 37.3% in 2021. There was a strong rebound to 52.92% in 2022, but this gain was partially reversed with a decline to 34.87% in 2023. This indicates fluctuating effectiveness in generating returns from invested capital, with the highest performance observed in 2019 and 2022, while other years showed reduced returns.

Overall, the data exhibit variability in profitability, capital utilization, tax efficiency, and return generation across the observed period. The company demonstrated resilience with periods of recovery following downturns, but some metrics, particularly capital turnover and return on invested capital, highlight challenges in sustaining consistent performance in recent years.

Net operating profit before taxes (NOPBT)

The net operating profit before taxes shows significant fluctuations over the five-year period. Starting at 406,394 thousand US dollars in 2019, it declined sharply to 228,647 thousand US dollars in 2020. Subsequently, it recovered strongly in 2021 to 361,124 thousand US dollars, followed by a peak in 2022 at 564,817 thousand US dollars. However, in 2023, the value decreased to 494,166 thousand US dollars. Overall, the trend indicates volatility with a notable dip in 2020, a strong rebound in 2022, and a slight reduction in the most recent year.

Adjusted revenues

Adjusted revenues followed a somewhat parallel trajectory to NOPBT but demonstrated even more pronounced changes. Beginning at 494,508 thousand US dollars in 2019, revenues dropped to 311,341 thousand US dollars in 2020. They then increased substantially to 449,048 thousand US dollars in 2021 and peaked at 669,360 thousand US dollars in 2022. In 2023, revenues slightly declined to 636,735 thousand US dollars. The data suggest a significant recovery after the decline in 2020, with revenues surpassing pre-2019 levels by 2022, although there was a marginal decrease thereafter.

Operating profit margin (OPM)

The operating profit margin experienced variability but remained relatively high throughout the period. It began at 82.18% in 2019 and dropped to 73.44% in 2020, indicating decreased efficiency or increased costs relative to revenues. The margin improved to 80.42% in 2021 and reached its highest point at 84.38% in 2022. In 2023, the margin declined to 77.61%. Despite fluctuations, the profit margin consistently stayed above 70%, reflecting a generally strong operational performance with some moderation in 2023.

The financial data indicates fluctuations and trends across key financial metrics over the five-year period examined.

Adjusted Revenues

Adjusted revenues experienced considerable volatility. Starting at US$494.5 million in 2019, they declined sharply to US$311.3 million in 2020, representing a significant drop. The following year saw a recovery, with revenues rising to US$449.0 million in 2021. A strong increase ensued in 2022, reaching US$669.4 million, the highest in the observed period. However, in 2023, adjusted revenues declined slightly to US$636.7 million, indicating some degree of stabilization after the peak.

Invested Capital

Invested capital demonstrated a consistent upward trajectory over the period. From US$575.2 million in 2019, invested capital slightly decreased in 2020 to US$555.7 million but rebounded sharply in 2021 to US$718.1 million. This growth accelerated further in subsequent years, with invested capital reaching US$840.7 million in 2022 and US$1.12 billion in 2023. This trend suggests ongoing investment and expansion activities.

Turnover of Capital (TO)

The turnover of capital ratio exhibited fluctuation and a generally declining trend. It started at 0.86 in 2019, indicating relatively high efficiency in generating revenues from the invested capital. This ratio fell significantly to 0.56 in 2020, aligning with the substantial drop in revenues that year. Although it improved to 0.63 in 2021 and further to 0.80 in 2022, it decreased again to 0.57 in 2023. This pattern suggests varying efficiency in the use of invested capital over the years, with 2023 reflecting a lower turnover despite increased invested capital.

In summary, while invested capital has grown steadily, revenues have shown more volatility, leading to fluctuations in capital turnover efficiency. The company appears to have increased investments substantially, particularly from 2021 onward, but the ability to convert these investments into proportional revenue gains has varied, peaking in 2022 and declining in 2023.

Cash Operating Taxes

The cash operating taxes exhibited fluctuations over the analyzed period. A decline was noted from 57,519 thousand USD in 2019 to 46,023 thousand USD in 2020. Subsequently, a significant increase occurred, reaching a peak of 119,954 thousand USD in 2022, followed by a reduction to 104,525 thousand USD in 2023. This reflects a general upward trend after the initial decrease in 2020, indicating increased tax payments corresponding with profitability changes.

Net Operating Profit Before Taxes (NOPBT)

NOPBT experienced notable variability during the period. Starting at 406,394 thousand USD in 2019, it significantly dropped to 228,647 thousand USD in 2020, indicating reduced operating earnings. However, the profit rebounded strongly over the next two years, peaking at 564,817 thousand USD in 2022, before declining to 494,166 thousand USD in 2023. This pattern suggests a recovery in operating performance post-2020 with some moderation in 2023.

Effective Cash Tax Rate (CTR)

The effective cash tax rate showed an increasing trend from 14.15% in 2019 to a peak of 25.83% in 2021. After this peak, the tax rate declined to approximately 21% in 2022 and remained stable at 21.15% in 2023. This indicates that although the company's tax burden increased significantly until 2021, it stabilized at a lower level in subsequent years, potentially reflecting changes in tax planning or operating conditions.

Overall Analysis

The data reveal a strong correlation between net operating profit and cash operating taxes, with both metrics generally rising and falling in tandem, particularly evident in the recovery period post-2020. The effective cash tax rate's rise through 2021 and modest decline thereafter suggests adaptive tax management in response to profitability changes. The fluctuations in profitability and tax expenses point towards a volatile operating environment, with the company demonstrating resilience by recovering profitability after a downturn in 2020.