RE: WRG paid $195 M for ISC I agree with you iaminvestor and here is why......
I compared Western Energy services to Tuscany. They actually are close to the same size from a rig and revenues point of view.
Company Rigs EV MC Net Debt REV. EBITDA CF EV/ FDS BV ND/EBITDA
Tuscany 41 $295 $73 $224 $320 $62 $35 0.73 $405 3.6
Western 49 $582 $420 $162 $310 $114 $98 9.20 $476 1.9
When one considers the differences, Western gets a peer leading premium day rate hence the better EBITDA and Cash Flow. They also have 8 more rigs listed.
From a relative valuation perspective on a per share basis, I look at the EV/FDS(enterprise value over fully diluted shares) relative to the current share price. For Western that is 1.16 (9.20/7.92) and Tuscany is a pathetically undervalued 3.74 (73/19.5). Also of note is that WRG is currently under valued relative to its peers. I used pre-announcement acquisition price for Western. Used RJ estimates for Tuscany and Actuals for WRG. Margins (and perhaps expenses) also seem to be an issue as on comparable revenue in 2012 the WRG EBITDA is nearly double that of TID.
IF Tuscany was trading at a comparable EV/FDS to Western, the share price would be 63 cents considering the capital structure value on a per FDS basis. WHICH IS THREE AND A HALF TIMES WHERE IT CLOSED YESTERDAY.
The problem with Tuscany IMO is the weighting of the two extremely expensive heli-rigs being idle and tear down and relocation costs are one of the factors that make the operating differences on cash flow and EBITDA.
IF you were a private equity firm looking at two firms on an enterprise value perspective understanding that SA and Africa were petroleum services growth markets verses NA they could very easily deduct that Tuscany has the value that could be unlocked through creation of a back stopped credit facility and redeployment of idle assets at peer achieved margins.
This is very quick but to me gets the point across that there is a relatively high degree of value that can be unlocked from Tuscany.
What management needs to do is attract an investor that is willing to inject capital to:
- Pay off the public shareholders at say 50 cents a share
- Reduce net debt level to $175 million and then back stop a restructure debt facility for the lower amount.
Just remember that an investor of this type is looking for a bargain and at 50 cents per share and the assumption of debt is likely all they would be willing to pay. But I feel that based on the current share price, current holders would be relatively happy to settle with over 250% increase from where the share price is today.
So yes I agree, Tuscany is very undervalued relative to a peer like Western that itself is undervalued relative to its peers.