My Highest Conviction Play: Valaris. 5x Over 5 Years?
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- Опубликовано: 28 май 2024
- Here I breakdown $Val Valaris. IMHO it is the single best risk-reward opportunity in the offshore oil space which happens to be my highest conviction industry currently.
#oil #offshore #valaris
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Great analysis Ben, thank you.
You're welcome Marty, thank you.
these vids are so educational. really wonderful.
Thank you, glad you enjoy them.
Excellent presentation; however, I'd like to explore a few details.
Q1. Firstly, could you clarify the expected lifespan of these assets? For instance, if a drillship typically lasts for 25 years, and Valaris current fleet has an average age of 9 years, wouldn't this imply that the value of our 11 drill ships is closer to $7 billion instead of the $11 billion for a new build. Have you considered adjusting NAV based on the lifespan of assets?
Q2. The cold and warm stacked rigs cost money to store. I have heard carrying costs like $60-$70 M. For a company bringing in $300M, the costs to keep rigs stacked can eat away at those earnings quickly. How do you think through that hefty overhead?
Thank you.
1. Yes. hence why I labelled this basic back of the envelope ' replacement cost' not NAV. Presuming of course the lifespan doesn't increase with some maintenance CAPEX as has happened in some shipping segments.
2. Val doesn't have as much in cold stack as RIG, less of an issue, the reactivation sometimes is payed by the contractor. Currently their cashflow and bal sheet is enough imho. They can and are, using their backlog to obtain finance for liquidity/buy backs.
You have a great common sense way of evaluating the companies you profile on your channel. I’m a big fan.
Any reason you haven’t included the April 2028 warrants in your analysis? Maybe because of their illiquidity/general public’s unfamiliarity with warrants?
Sold off almost all of my $VAL in the $70’s to scale into the warrants. $131.88 strike price with a long time to let the spiking day rate thesis to play out. In the $324 a share scenario, you’re looking at a 15x return compared to 5x on the common.
You are correct of course- not many people can buy the warrants that's all
Great pick
Long seadrill and odfjell
Thanks - Love odfjell also!
great video. thank you.
how are you calculating the IRR of drill ships in your example? 1.01bn with day rate of 650k gives me 650k*365days=237m per annum. IRR that for 25yrs gives me 23.37%. Are you taking into account maintenance and ongoing expense of say 200k a day or so? or are you counting business days instead of calendar days(the rigs keeps drilling everyday tho?)Perhaps dayrates decline overtime as the drills gets older? Am I missing something?
yes, I use what the investment banking numbers are. Because that's what they go off. And yes maintenance capex will be factored.
For a highest conviction, I honestly believe that, the assumptions are indeed really great.
However, I'd strongly recommend always to compare companies with companies in the same sector, and this is because, compering VAL with PTEN, "just as an example", you'd very, very quickly find out that you'd have paid 1/3 or less, meanwhile holding and keeping all other assumptions still true, for a future ROI.
Thanks, I appreciate the heads up on PTEN. They obviously have their differences being offshore v onshore. But I like PTEN
Coming back to this later for a look. I missed the chance to buy RIG and instead was long Baker Hughes & Schlumberger to try and capture the same upside. The attractiveness of these drilling contractors is actually the visibility of longer term contract awards, easily totted up.
Yeah, their more cyclical but when you see a bottom for the sector...
sound is a bit low, great video!
thanks
What if the price of oil falls? Have you you looked at supply coming in line outside the Permian ?
BE for most of these types of projects are mid $40 BBL.
obviously if oil tanks their day rates won't inflect as expected presumably as there would be less demand for contracts. HEnce why buying those Cos with better balance sheets as they can ride it out if need be
Your analysis is very interesting. I didn't know the company or the sector. A doubt. I can be wrong. They just bought 2 drillships for 343 millions. How are those they have valued at $1B? Some had construction costs around 650 million. Thanks
Thank you. Yep - newbuild costs used when calculating replacement value. You can depreciate them using their age and accounting dep schedule etc but for new supply to come online, you gotta build these babies from scratch now ( and deposit like 40% upfront)
Ben - curious if you have looked at other potentially cheap names w/ high divis like $VARRY $SSL $MOL $PKN $OMV
I haven't in any depth mate, not yet
@@theROIpodcast cheers - how closely does the etoro portf mirror your personal? itching to add to BTU / PBR / NFE but closely following potential for recession in '24
ah gee that's hard to say mate as it's subject to change. The core holdings are very similar, but a few ASX and SGX listed equities aren't available in etoro. Besides, I'm the largest investor in the etoro port currently as it is@@j_ltz_
@@theROIpodcast makes sense - regardless, these valuation focused videos are great! Also enjoyed the chappy podcasts.. keep em comin 😀
Thank you@@j_ltz_
What if dayrates go down? Could a recession and a significant drop in oil price change your thesis?
Could delay it, but in that event all the competitors would bust first, leading to dec oil supply and then boost price.
The volume on this video is pretty low
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