Canadian oil patch for sale!

[FFHWatcher]

well if you are not bullish on energy prices why would you buy those names?

 

read the post : it is pretty clear. He says Small %. Not going all in.  Sounds speculative. Maybe he is thinking... 30-40% downside with 100-200% upside is a good wager, that is my guess what he is thinking.  Betting on survivors with solid (relatively speaking) balance sheets.  He doesn't have to be bullish on oil or gas prices...just certain that our planet will continue using those resources so he is placing some $$ with companies that can survive a downturn. 

[sculpin]

Anyone see this amazing deal that aveda pulled 2 months ago? Almost unbelievable.

 

http://www.avedaenergy.com/investors/press-releases/press-release-details/2015/Aveda-Transportation-and-Energy-Services-Provides-Further-Details-on-Hodges-Trucking-Acquisition-and-Operational-Update/default.aspx

 

Could be some incredible bargains (in both E&P's and service companies) out there over the next 4 months especially as the tax loss selling season hits. Aveda pulled off an outstanding deal here but the underlying business is so weak and they do have a fairly substantial amount of debt.

 

Aveda Transportation & Energy Services Inc. (AVE-V)

Q2 Shows Depth of Challenge Facing a Newly Enlarged AVE

12 Month Target: $3.00 (was $6.00)

Rating: BUY (unch)

 

Q2 results were, not surprisingly, much weaker than one year ago. What was surprising was negative gross margin (-11%). This speaks to the brutal competitive market facing rig movers. Sales were down 28% to $23.0 million, slightly ahead of our forecast. But EBITDA came in at -$2.2 million, well below our $1.4 million forecast. US sales were down 19% y/y while Canadian sales were down 70% as rig counts hit new multi-year lows. US sales comprised 92% of total sales.

 

Aveda closed the Hodges acquisition on June 15th for US$42 million. It has since disposed of 350 pieces for US$22 million and restructured operations. We believe that ultimately this will prove to be a great deal that has removed a significant competitor. Near-term results from the acquired business will be unimpressive, with monthly run-rate data well below expectations.

 

With rig activity dropping by 50%+ y/y, the impact on pricing has been severe. We expect margins will remain challenged for several quarters, with management guiding Q3 to be EBITDA negative. We are significantly lowering expectations.

 

With the proceeds from the asset sale, the balance sheet sees net debt of roughly $70 million (including note issued on Hodges deal). Given current borrowing availability at twice the $25 million minimum threshold, there are no financial covenants to be met. While there remains flexibility and we expect working capital to generate cash in Q3, debt repayment is a priority.

 

With dramatically lower EBITDA estimates, our 12-month target moves to $3.00 (from $6.00). Current TBV of $3.41 backstops our valuation during this trough EBITDA period. We maintain a BUY rating, but believe investors should be patient in picking their entry point.

Analyst: Michael Mills, MBA, CFA

902.425.8897

[kevin4u2]

Anyone see this amazing deal that aveda pulled 2 months ago? Almost unbelievable.

 

http://www.avedaenergy.com/investors/press-releases/press-release-details/2015/Aveda-Transportation-and-Energy-Services-Provides-Further-Details-on-Hodges-Trucking-Acquisition-and-Operational-Update/default.aspx

 

 

What is so amazing and unbelievable?

[rykelsap]

That they were able to acquire a large competitor for minimal cost, well below book value and at a low multiple of three year historical EBITDA. The acquisition of Hodges is a counter-cyclical acquisition at distressed asset prices with a payback period of less than a six months. Seems like solid capital allocation to me.

 

"The Company incurred US$42.0 million (US$27.0 million from the Note and US$15.0 million from Company's senior secured facility) in debt to complete the Acquisition. Through the US$22.0 million Asset Sale, the Company has recovered over 52% of its initial investment. The Acquisition included US$17.5 million in working capital which the Company expects to convert into cash within 90 to 120 days. Accordingly, the Company expects to receive approximately US$38.8 million in cash (or over 92%) of its initial US$42.0 million investment in the next 90 to 120 days."

 

"Expects to recover over 92% of its initial investment within the next 90 to 120 days through the Asset Sale and the conversion of US$17.5 million working capital into cash. Further, the Company expects to recover all of its investment including acquisition related expenses within six months through increased revenue from Hodges' customers and reduced pricing pressure. Accordingly Aveda expects a 100% payback on its investment within six months."

 

"Hodges' gross revenue peaked at approximately US$166.0 million in 2012, dropping to US$139.4 million in 2013 and $123.7 million in 2014. EBITDA was US$34.0 million in 2012, US$13.6 million in 2013 and US$14.1 million in 2014. On a combined basis, Hodges' and Aveda's 2014 gross revenue would make it the largest rig moving company in North America (by gross revenue)."

[JayGatsby]

Would it be fair to say that if they'll recover 8% of the acquisition price (~US$4M) over the next six months through revenue / pricing, the acquisition will add roughly $8M of annual EBITDA?

 

It looks like most of the assets of Aveda and Hodges are tractors / trailers that aren't overly specialized and would have value in something other than oil/gas? I forget who it was who bought into a oil/gas helicopter transport company during one of the downtowns with the simple theory that a helicopter is a helicopter.

 

Thanks for pointing this out. Interesting setup.

[kevin4u2]

They acquired a competitor and liquidated the assets for the purchase price.  Some points to considers:

1) Return of capital does not equal return on capital.  They did not make 100% return on this acquisition. 

2) The refinanced debt is at 9%.  That tells you the credit quality. 

3) They will not realize the revenue or EBITDA of Hodges, unless they can magically do so without the assets. 

4) Even if they still had the assets they don't have any customers.

5) Their are additional costs in executing this type of deal that need to be considered. 

 

Listen, all they did was take out a competitor to alleviate pricing pressure.  Some service companies are operating with negative gross margins.  I would also ask you this.  Did the people/companies that bought the liquidated equipment plan on burning it or using it?  If they plan on using it, then a new startup competitor will be now competing with them.  A new startup may even have lower costs.  How long will the better pricing last? 

 

That they were able to acquire a large competitor for minimal cost, well below book value and at a low multiple of three year historical EBITDA. The acquisition of Hodges is a counter-cyclical acquisition at distressed asset prices with a payback period of less than a six months. Seems like solid capital allocation to me.

 

"The Company incurred US$42.0 million (US$27.0 million from the Note and US$15.0 million from Company's senior secured facility) in debt to complete the Acquisition. Through the US$22.0 million Asset Sale, the Company has recovered over 52% of its initial investment. The Acquisition included US$17.5 million in working capital which the Company expects to convert into cash within 90 to 120 days. Accordingly, the Company expects to receive approximately US$38.8 million in cash (or over 92%) of its initial US$42.0 million investment in the next 90 to 120 days."

 

"Expects to recover over 92% of its initial investment within the next 90 to 120 days through the Asset Sale and the conversion of US$17.5 million working capital into cash. Further, the Company expects to recover all of its investment including acquisition related expenses within six months through increased revenue from Hodges' customers and reduced pricing pressure. Accordingly Aveda expects a 100% payback on its investment within six months."

 

"Hodges' gross revenue peaked at approximately US$166.0 million in 2012, dropping to US$139.4 million in 2013 and $123.7 million in 2014. EBITDA was US$34.0 million in 2012, US$13.6 million in 2013 and US$14.1 million in 2014. On a combined basis, Hodges' and Aveda's 2014 gross revenue would make it the largest rig moving company in North America (by gross revenue)."

[investmd]

Noticed this post was started in 2013 and 7 years later it's still on sale! Kind of like Fairfax financial. Ouch.

Compared to 2014, WTI is down 50%, whilst a lot of Canadian oil patch equity is down >90%.

 

Companies are still paying dividends. Thesis: IF companies are able to survive at WTI of $50, then equity price will rise substantially when WTI price rises. In the meanwhile, I bought a basket of TOU, PEY, HSE, VET, ARX. They are paying out an average dividend yield of 7-8% at today's prices.

 

World oil consumption is still increasing. Downside risk is that world reaches peak oil consumption & wti doesn't spike. Then oil producing countries may try to monetize their residual assets and open the taps...