David Nierenberg

  • David Nierenberg & Cara Jacobsen (The D3 Family Funds)

Involved in for 13 – 14 years.  They like busted growth companies.  Take a 10% stake.  Collaborative way with management.  Intrinsic value about 5 years out.

Superior Energy Services, Inc. (NYSE:SPN) is their investment idea.

An undervalued growth opportunity in domestic land, offshore, and foreign oilfield services.

Holds concentrated portfolio of 8-12 names.  Mainly micro cap.

10% ownership stakes in companies

Work in collaborative manner with management.

Private money so can invest with longer time horizon

Micro caps are least efficient markets.

Avg size of position 30m….300m mkt cap average for names held

Superior Energy Services, Inc. (NNYSE:SPN)

Diversified mid cap name

Strong balance sheet and cash flow

Nat gas and tectonic shift in US energy

Growth company at a value price

Expect 3x upside on investment

Nat gas is a small piece of overall business

Strong management- new CEO Dave Dunlap (been there 2 years)

Pressure pumping, fracking 18% of revs

19% Intl   17% GofM

Net debt/ebitda 1.6x

CPX merger nearly doubled the share count.  Alleviate labor constraints in the coil cooling business

Net debt/EBITDA = 1.6x and should move to 0.9x

P/E 7.3x

TEV/EBITDA 3.9x

18% pressure pumping

15% drilling products and services

12% subsea

11% fluid handling

Estimated forward P/E 6.3x

Shifting away from nat gas into oil exploration in Marcellus shale

There are four major near term drivers

Other NA services

Deep water GofM- permitting activity is sharply up

International- Brazil, Australia, Saudi Arabia   2012 intl capex +50% vs 2011

Water Management

At some point natural gas will bottom and resume growing

Potential near term drivers:

Hot summer, reducing drilling activity

CEO focusing on capital allocation- something SPN has not done much of in the past

Selling non-core assets, investing in water mgmt. (35% EBITDA Margins)

Upside 15x eps of 5.25 over next 3 years (~$80 target)  currently at $24

CPX acquisition essentially doubled share count

$3.50 – $4.00 per share current mid-cycle earnings power

Deploy $2.5 billion in growth CAPEX in 2013 -2015

$5.25 per share in 2015

Q&A

Margins contracted for Baker Hughes, but not haliburton.  Not sure how long SPN can keep margins high.

Can SPN actually gain exposure into the intl markets.  Especially Saudi Arabia, where oil is highly political.

Stock chart is nasty. There is a distinction between natural gas and oil.  Oil has a global commodity price.  Natural gas is very, very different.

 

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