Stonecap Securities no longer covers Tuscany (at lest is what my Bloomberg says)Last report came on April 2013 and yes, it shows a "slightly reduced" price target...
Stonecap Securities keeps outperform on Tuscany Intl Drilling as overseas land drilling markets remain strong
9th Apr 2013, 10:40 am by Deborah Bacal
Analyst Aminul Hague at Stonecap Securities took a closer look on Tuesday at
Tuscany International Drilling (
TSE:TID) - a day after the company's shares gained 50 percent on the hiring of Citibank Global Advisors and Black Spruce Merchant Capital to help in searching for strategic alternatives designed to boost shareholder value.
Management made it clear that the sale of the company, whole or in part, is not one of the alternatives. The financial advisors are to focus on strategic alternatives, while management is to focus on operations.
The analyst notes that in the brokerage firm's view, improving utlization rates and margins would have the greatest impact on Tuscany's 2013 performance. The company, a Canadian provider of oilfield services with operations in South America, offers drilling, completion, workover, and equipment rental services to exploration and production companies in Colombia, Ecuador, Trinidad, Brazil, Gabon, Congo, and Tanzania.
Hague says that although high leverage - with total debt of $245.0 million drawn out of a $255.0 million limit - remains one of the critical issues facing Tuscany, the company has the capacity to service term and interest payments. It also has "a number" of options to refinance the loans, he adds.
With regards to improving utilization rates, the analyst takes note of the fact that eight idle rigs are expected to be contracted out in Colombia and Brazil throughout this year, with overall utilization rates in 2013 expected to exceed 75 percent.
Improving margins would also benefit the company, Hague believes, as Tuscany's fourth quarter 2012 margins declined considerably because of labour costs associated with terminated contracts.
"We expect some of these costs to be recouped at completion of the currently ongoing arbitration process. Also, a leaner workforce and higher utilization should also contribute to improving margins," Hague writes in his morning research note.
"Despite persistent weakness in the North American drilling market, international land drilling markets remain strong. Although it may not be an alternative considered by TID management, the attractiveness of TID’s international platform to larger North American drilling contractors puts a floor to TID’s valuation," he concludes.
The analyst maintained his outperform rating on the company, with a 40 cent price target. Shares of the company were trading up today by one penny at 14.5 cents.
Tuesday, Tuscany announced that effective April 18, director Jeff Scott will be resigning from his position to avoid "any potential conflicts of interest" arising from his present business endeavours.