RE:all of a sudden TD loves the stockThanks for sharing. I don't have TD research access so I can't comment on valuation revision and methodology. However, at a $10 share price, Shawcor would only be trading slightly above the current book value of equity ($648 million as of Q2).
My two cents regarding Shawcor and Q2 is as follows:
- Management Mandate: The mandate of Management is clear: to build a higher margin, more streamlined business that can generate high and consistent returns to shareholders. My view is that if Management can pull this off and the return on equity profile returns consistenty to the mid-to-high teens, then Shawcor will be a multi-bagger (3x to 4x depending how generous the market is to the multiple). I have a minimum investment horizon of 5 years.
- Pipe Division - Improving and lots of upside: The Pipeline & Pipe Services division has detracted from the earnings of the business over the last few years but is now turning a corner. I believe there are tailwinds in this division over the next few years based on the underspend in the oil & gas sector globally since 2014.
- Composite & Industrial - Growing and capital opportunities: The Composite and Industrial divisions are growing nicely and the supply chain shortages to start to abate. There are capital deployment opportunities here.
- Restructuring "Noise": There is quite a bit of "noise" in the results from all of the re-structuring and re-shuffling which hurts the bottom line but is not indicative of longer term performance.
- High Debt Levels: The Company is still overleveraged compared to where it should be at 1.5x Debt to EBITDA. This is a continued overhang but won't be for much longer.
- Market Apathy: The market does not quite yet appear to understand the changes being made OR is taking a wait and see approach to the business transformation (I wouldn't blame them for watching from the sidelines as the book equity value has declined by over 40% since 2016 due to impairment and losses from operations). As described on the conference call, Management believes that it still has a ways to go yet on restructuring the company and hitting its debt target.
Investing in Shawcor is not a slam dunk by any means but is moving in the right direction and I have been a buyer over the past few months at the mid-$5 range.
I would like to see Management continue to execute on its plan. I expect that debt levels will be in-line with expectations by Q4 om a TTM basis (mix of rising EBITDA and reduced debt). Starting in 2023 we can really see what Management can do from a capital allocation standpoint.
Best of luck,
LR