Akita advantages....Good morning Possible,
An honnest response to your question is i don't know.I am no expert in ther service O&G
sector.I am a retired account from Stelco.
We all know that the kingpin in Canada is PD followed by ESI.
Akita is a small player but seems to have a good reputation.
Look at their actual customer.Right now, they only have 7 rigs working in Canada.
their present customers are CNQ(2 rigs),Shell(2 rigs),Veren, Kiwetinohk and Cenovus.
If they were not good operators, i don't think they would attrack these kind of customers.
Prior to their near dead in the pandemic era, most of the time they had higher utilisation
% than their competitors
The reason i bought shares in Akita was on my assesement of the value of the company vs it's trading price.
It's been almost a year since i started building my position in Akita(August 2023).
So far, the stock price action as
proven me wrong.Obviously, had i started recently, i would have more shares for the same investment.
I have written many times on the reasons that got me back in Akita.
It's the value proposition and a turnaround situation.
When i started building my position in DRX in mid 2022, i bought my first shares at $1.68
a few months later they drop to a low of $1.36 and went sideways for more than a year.
We know the story.I am not saying that Akita will be a ten bagger but i am still a believer
that Akita could/ will at least double if not triple.
Here are some points i have brought out over the past year on Akita.
To build a new triple rig cost about 40 million$
Right now, Akita has not new but well maintained 17rigs in Canada and 15 in the USA.
Most of them are triple pad.
The EV value of Akita stands at $110 million.So the market is evaluating the value of their
32 rigs for less than 3 new rigs.That makes no sense at all in my minds.
When they bought Extreme, it came with a huge tax deferred asset.This tax asset alone is worth $1.91 / share.So when you buy Akita at $1.35 you get all of their rigs for free and then an extra
56 cents.
Here are the detail from the 2022 annual report.
A net deferred
tax asset has not been recognized for $76 million (2021 – $69 million). This amount is primarily related to non-capital losses carried
forward.
Total gross tax losses available to the Company are $434,694,000 with $398,191,000 in the US and $36,503,000 in Canada. The
first of these losses will begin to expire in 2031.
Also i like the fact that the management are doing exactly what they told us they would do.They recognized that they had to strengten the balance sheet and reduce the debt.
Since 2022, they brought the debt from 93.5 million to 69.6 million.
Now, they say that the debt should go down another 15 to 20 million at year end.
In 2025,they could be getting close to becoming once again a debt free company.
Just the saving of the interest on the debt will add about 17 cents pre tax
earning per shares VS 2022.
Akita was a debt free company prior to buying Extreme and was paying a 28 to 32 cents dividend.
Once they get close to their debt target, what will they do with the extra cash?
If the SP is still in the basement, the right thing to do would be to initiate a NCIB
or a SIB.If the SP as improved,then maybe they will reinstate a dividend
A 10 cents dividend would cost them less than 4 million / year and at last night close
would yield 7.4%
A 15 cents dividend would cost them less than 6 million / year and at last night close
would yield 11.1%
During the Covid crisis, Akita took an impairement charge of 80 million$
So their assets are sitting at very low valuation(1/3 of book)
Look, i could go on and on but you surely get my point of vue on this value proposition.
But to get the stock going we will need better activity.
Management told us that H2 and 2025 will be much better in term of activity.
They said that they foresee having abou 11 to 12 rigs working both in Canada and in the US in Q3 and Q4
IF that comes to fruition the stock could start moving(Finally).
Look, i will say it again, i have been wrong all the way on Akita
but i still think that with patience, this investment could be very rewarding.
If i am wrong, i will come back in a year and say so.
If Warren Buffet came make mistakes, imagime me.
Obviously, there are others that thinks differently of Akita because they are willing to sell their shares at these levels.
That's the beauty of the stock market.There is a buyer and a seller and only one of them will be right.
P.S.Q2 results should be out at the end of the months.With the activity being so low
they won't be good.
I am banking on a major improvement in Q3,Q4 and 2025.
Hope this was not a to lenghty reponse and forgive me for all of the spelling mistakes.
I am french speaking and it is not that easy to put in writing my thoughts .
Wishing you good luck in ALL of your investments decisions