CASE STUDY: Tidewater, Inc. (TDW)

(Zen Buddha Silence by Marilyn Barbone)

(Image: Zen Buddha Silence, by Marilyn Barbone)

October 17, 2021

Here is the performance of the Boole Microcap Fund this year and since inception (06/09/20).  These figures are through 10/20/21:

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2021 net return (thru 10/20/21) 49.4% 24.1% 22.6%
2020 net return from inception (06/09/20) 21.1% 31.7% 16.3%
Compounded annual return (net) 34.5% 27.8% 19.4%
Overall gain (net) 80.9% 63.4% 42.6%

Our investment in Tidewater, Inc. (TDW) has been one of our best ideas thus far.

I first wrote up the idea of TDW in May 2020 here: http://boolefund.com/tidewater-tdw/

At the time, the stock at $5.12 a share was extremely cheap based on our five measures of cheapness:

    • EV/EBITDA = 3.85
    • P/E = 2.95
    • P/B = 0.21
    • P/CF = 2.06
    • P/S = 0.43

Since then, TDW stock is up to $12.49.

How much is TDW worth today?

On a normalized basis: revenue is approximately $600 million; cash flow is $300 million; EBITDA is $260 million; earnings are $120 million.  (The market cap is $531.1 million.  Enterprise value (EV) is $555.9 million.)  NAV per share is about $40.

    • EV/EBITDA = 2.14
    • P/E = 4.43
    • P/B = 0.31
    • P/CF = 1.77
    • P/S = 0.89
  • (I used P/NAV instead of P/B because P/NAV is more accurate.)  TDW is still very cheap assuming that the industry experiences some normalization—i.e., reversion to the mean.

The oil price (WTI) is $82.17.  If oil prices stay around this level, Tidewater will achieve normalized revenues and earnings.  But the oil price could move quite a bit higher, in which case Tidewater could approach peak earnings within a couple of years.

For an interesting take on how tight oil supplies are currently, check out this piece by Josh Young of Bison Interests, “OPEC+ Spare Capacity is Insufficient Amid Global Energy Crisis.”  Link: https://bisoninterests.com/content/f/opec-spare-capacity-is-insufficient-amid-global-energy-crisis

Intrinsic value scenarios:

    • Low case: The current book value per share is $18.51.  TDW could be worth 50% of book value.  That’s $9.25, which is 25% lower than today’s $12.49.
    • Mid case: TDW is probably worth the current NAV of $40 per share.  That is 220% higher than today’s $12.49.
    • High case: TDW could be worth 150% of the current NAV ($40 per share).  That is $60 per share, which is 380% higher than today’s $12.49.  (NAV itself could be revised upward significantly in a recovery scenario.)

The Piotroski F_Score is 4, which is not very good.  But this is a cyclical company whose trailing revenues, cash flows, and earnings are far below normal.  As the industry recovers, TDW’s F_Score will also recover.

Insider ownership is 2.6%, which is low.  But that’s still about $14 million.  So insiders have an incentive to maximize the value of the company over time.

Note: Robert Robotti, through his investment management firm, owns a stake in TDW.  Robotti has a long history of successfully investing in energy companies.  Also, Robotti is on the board of directors of Tidewater.

Debt is low.  Net debt is zero.  TL/TA is 33%.  This is excellent.  One of Tidewater’s advantages is that it has much lower debt than most if its competitors.

 

BOOLE MICROCAP FUND

An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time.  See the historical chart here:  http://boolefund.com/best-performers-microcap-stocks/

This outperformance increases significantly by focusing on cheap micro caps.  Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals.  We rank microcap stocks based on these and similar criteria.

There are roughly 10-20 positions in the portfolio.  The size of each position is determined by its rank.  Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost).  Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.

The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods.  We also aim to outpace the Russell Microcap Index by at least 2% per year (net).  The Boole Fund has low fees.

 

 

 

Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.

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