Hyduke Energy Services Inc. HYKCF

RE: This is great news!

[hawkowl]

Yes Red I did simplify it using price to sales. Are you sure about your new fully diluted share structure assuming placement is fully subscribed? HYD have very few options outstanding from my research. Here is an old post from Crossy! ............................................................HYD.V - Hyduke Energy Services - C$3.00 An incredible value in oilfield equipment Shares out 17.3m (basic) – 17.6m (fully diluted) Insiders (directors etc.) own more than 9m shares Marketcap: $53m Can$ (fully diluted) Total Debt (Bank debt, LT Debt + current portion): around $15m Employees - around 300 (expected to climb as rig dimand accelerates materially) The most important activity that Hyduke performs is the production, manufacturing and servicing (repair) of drilling and workover rigs. Apart from this, Hyduke is a provider of oilfield supplies an consumables, pneumatic controls, drilling tools and lifting and hauling equipment (cranes). Essentially it provides all services associated with the lifecycle of a drilling rig. It should be noted up front that building a rig is not equivalent with welding some steel parts together, even if it may appear this way. A rig design is highly proprietary, needs certification and costs, according to the company around $1m, which poses a significant barrier to entry for those many mom & pop steel processing shops and welding companies. Last fiscal year ending April 2005, Hyduke (HYD.V) boasted the following metrics www.hyduke.com •Financial Performance (FY April 2005) –Revenues $70.4 m - FY2005 – growth 58% y/y –EBITDA $7.7 million –Earnings $3.8 million ($0.22 basic EPS) –ROE 41% –ROCE 20% -Gross Margin 16% During the “current” quarter 2006/01 that ended July 31st, Hyduke posted even better numbers: https://www.stockhouse.ca/news/news.asp?newsid=2940210&tick=HYD -Revenues $23.2m -Gross margin $3.5m -Net Income $1.4m ($0.08 basic EPS) The current boom environment for oilfield related services created record demand for drilling rig services (repairs, maintenance) which benefited the company initially last year. As soon as land rig utilization zoomed past 90% the usual demand for new-rig construction sets in and this time was no exception. The new reality however is that this boom phase for new rigs should last way longer compared with past cycles and the recent hurricane impact only aggravated the shortage of drilling rigs to another level. With a full order book and a business model that has long lead times and, unlike most oil service stocks, not so much influenced by seasonal components the company is now poised to aim for C$100m revenues and EPS in the $0.25-0.30 range. Gross margin should converge up towards the 20% again over the midterm. The recent downdrift to the 12% level was the result of significant ongoing projects, where semi-finished rigs in WIP (work-in process inventory) are not valued with future revenues but at a reduced rate according to GAAP. Since rig-building activity increased materially at the company, WIP inventory rose from $2m by 2005/Q1 to north of $10m in the current quarter (2006/Q1). This accounting treatment resulted in lower gross margins for the current period. Once the ramp-up in new-rig building activities evolves at a less staggering pace, the effects on Gross margin should reverse. While Hyduke is valued at a forward PE of 10-13 and at a forward PSR of 0.5 its (mainly US) competitors with roughly equal margins and business models are enjoying Price/Sales ratios north of 3. This alone points to a significant undervaluation of Hyduke that should correct once market participants have a better understanding about the company. Among competitors most notable are Nyse: NOV (National-Oilwell / Varco) which makes not only land-rigs (as Hyduke) but also top drives and offshore rigs, products that Hyduke doesn’t supply. Another competitor – Helmrich & Payne (Nyse: HP) is an ordinary drilling contractor apart from the construction of new rigs. Potential catalysts for Hyduke coming up are manifold: 1) Closing the valuation gap with competitors (this aspect alone could be worth a 3-bagger) 2) Increasing revenues and profitability levels 3) Hyduke might be able to refinance its bank debt on better terms. 4) The company is actively exploring options to increase capacity – either by organic ramp-up or by acquisition of other capable private outfits all the best CROSSY