- 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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