(Image: Zen Buddha Silence, by Marilyn Barbone)
May 31, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Tidewater (TDW): https://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): https://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): https://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): https://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): https://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at SEACOR Marine (SMHI), which was spun off from SEACOR Holdings (CKH) in June 2017. SEACOR Marine is a provider of global marine and support transportation services to the offshore oil and gas industry. The company also provides its services to offshore wind farms. SEACOR Marine has a market cap of $36 million.
Step One
First we screen for cheapness based on five metrics. Here are the numbers for SEACOR Marine:
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- EV/EBITDA = 5.60
- P/E = 1.19
- P/B = 0.08
- P/CF = 0.52
- P/S = 0.07
These figures make SEACOR Marine one of the top ten cheapest companies out of over two thousand that we ranked. (Normalized earnings is approximately $30 million.)
Step Two
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: https://boolefund.com/piotroski-f-score/
SEACOR Marine has a Piotroski F-Score of 6. (The best score possible is 9, while the worst score is 0.) This is decent.
Step Three
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). SEACOR Marine has TL/TA of 52.9%, which is OK.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At SEACOR Marine, insider ownership is approximately 10%.
Shareholder yield is the dividend yield plus the buyback yield. The company has not bought back shares, but has instead issued shares. The company pays no dividend. Thus, shareholder yield is close to zero.
Each component of the ranking has a different weight. The overall combined ranking of SEACOR Marine places it in the top 20 stocks on our screen, or the top 0.8% of the more than two thousand companies we ranked.
Step Four
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
Here is the company’s investor presentation from September, 2019: https://ir.seacormarine.com/static-files/111f9bd0-64bb-42c4-adbe-3b9239c3f817
Offshore oil drilling—which is what SEACOR Marine primarily supports—has slowed significantly due to a drop in oil demand caused by stay-at-home orders to deal with the coronavirus. In response, OPEC+ has cut oil production by a record amount. Eventually, a vaccine for the coronavirus will be found. In the meantime, widespread testing plus contact tracing will allow the world economy to gradually return to a more normal existence.
OPEC+ will maintain supply cuts until oil is at least $50 to $60, if not higher. Countries including Saudi Arabia and Russia (the two largest producers in OPEC+) need oil to be at least $50 to $60 to fund their states.
In brief, oil should return to at least $50 to $60, if not higher, within a few years. Offshore oil drilling will gradually recover. Offshore service vessel operations will be needed more and more.
SEACOR Marine is very well managed and appears to have greater upside than Tidewater—which we looked at last week (https://boolefund.com/tidewater-tdw/). However, SEACOR Marine could run into liquidity issues, which makes it somewhat riskier than Tidewater as an investment. SEACOR Marine has $69 million in cash and $420 million in debt. $309 million of that debt is due in 2023 or later. Thus, the company’s balance sheet is decent, but could still present problems as the offshore oil drilling recovery becomes more protracted.
Intrinsic value scenarios:
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- Low case: In a distressed scenario, SEACOR Marine may be worth 10% of current book value of $19.76 a share. That’s $1.98, which is over 25% higher than today’s $1.55.
- Mid case: SEACOR Marine is likely worth at least book value of $19.76 a share. That’s over 1,170% higher than today’s $1.55.
- High case: SEACOR Marine may be worth 150% of book value of $19.76. That’s $29.64, which is over 1,810% higher than today’s $1.55.
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: https://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.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: jb@boolefund.com
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.