Haruki Toyama of Marcus Asset Management: Long TGS Nopec

Haruki Toyama of Marcus Asset Management, InvestPitch presentation produced by sumzero and Institutional Investor on the long case for TGS NOPEC Geophysical Company (STO:TGSO) (OTCMKTS:TGSNY).

Also see: Eileen Segall of Tildenrow Partners: Long on ReachLocal

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Investment Thesis

TGS NOPEC Geophysical Company (STO:TGSO) (OTCMKTS:TGSNY) is an oil and gas seismic data provider. It has 40% operating margins, 20%+ return on equity with a large net cash position, and has grown revenues and profits at a 20%+ clip for the past decade. It has an excellent industry reputation, and solid management. Yet its shares only trade at a 2013 EV/EBIT of 7.7x and P/E of 12x (11x backing out net cash), because of temporary weakness and under-appreciation of its business model. We think that’s just too cheap.


Norwegian company TGS-NOPEC Geophysical is a leading offshore seismic data provider to the oil and gas industry. It collects, processes, and resells seismic data of underground marine formations.

Customers are exploration and production companies that use this data to decide where, whether, and how to drill for oil and gas. Seismic data can increase the odds of success in finding new deposits. It can also increase recovery rates of developed fields. It would be unusual to say the least for anyone to drill a hole in the ground to look for oil or gas without analyzing seismic data first. An E&P company can hire a seismic company to acquire data using two different ownership models. It can pay full freight for the entire survey, and own the data on a proprietary basis. Or it can go the cheaper route, which is to pay a fraction of the cost, and let the seismic company own the data. This latter model is called “multi-client” seismic data.

TGS NOPEC Geophysical Company (STO:TGSO) (OTCMKTS:TGSNY) does almost exclusively multi-client surveys. One or more E&P companies hire TGS to conduct a survey of an area for non-exclusive use; TGS acts as project manager for the surveys, and owns the data collected, giving it the right to resell it to other customers in perpetuity.

H/T Curry Goat

Haruki Toyama of Marcus Asset Management: Long TGS Nopec