Latest / Bloomberg Intelligence / Bob Robotti Says Subsea 7 Is a Compelling Investment (Audio)

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Bob Robotti Says Subsea 7 Is a Compelling Investment (Audio) · Bloomberg Intelligence

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  Speaker 1: is Bloomberg, Charlie, and we thank you. What again recapping
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  Speaker 1: Stock's law SMP five hundred index down six so drop
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  Speaker 1: there are three tenths of one percent to twenty one
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  Speaker 1: seventy five. I'm Charlie Palatine. That's a bloom Bread business flash.
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  Speaker 1: You're assuming to taking stock with pim Box and Katholeen
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  Speaker 1: Hays on Bloomberg Radio. For more than two years, strong
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  Speaker 1: oil production from the Organization of petroleum exporting countries and
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  Speaker 1: those outside the blocks such as the United States and Russia,
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  Speaker 1: have created a supply overhang that has dragged the price
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  Speaker 1: of oil down. Oil today down nearly three percent. Down
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  Speaker 1: A dollar and a quarter forty one dollars fifty three
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  Speaker 1: cents will buy you that barrel of West Texas intermediate crude.
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  Speaker 1: So what prices low? Are there bargains? Is there a
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  Speaker 1: value play? Let's find out from Bob Robodi. He is
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  Speaker 1: the founder and the president of Roboti and Company, and
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  Speaker 1: he joins me in the studio. Bob, thanks for coming in.
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  Speaker 1: Always great to see you. Great great tell people a
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  Speaker 1: little bit about your background. How long have you been
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  Speaker 1: doing this looking for value and energy and maybe tell
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  Speaker 1: us have you seen this kind of market before? I
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  Speaker 1: guess my first energy stock and that one of my
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  Speaker 1: first investments was forty years ago, so I've got forty
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  Speaker 1: years of history. And of course a lot of things
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  Speaker 1: have transpired in the oil business since then, so we've
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  Speaker 1: seen many things like this, you know, as they say,
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  Speaker 1: history does rhyme, and we've seen things a lot worse
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  Speaker 1: than this, and we've seen things that are pretty much
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  Speaker 1: analogous to this. In the meantime, it's a great opportunity
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  Speaker 1: to be able to buy things if you're a long
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  Speaker 1: term investor, long term investor and focused on deep value.
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  Speaker 1: Uh right, the deep value, and that is predicated on
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  Speaker 1: what we think the earnings power the business is. So
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  Speaker 1: that's what you know. It is not an asset that
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  Speaker 1: is cheap and below book, but as an asset that
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  Speaker 1: will generate cash flows that is significantly greater than the
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  Speaker 1: current implied value of the company. Is all right, let's
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  Speaker 1: talk about one just maybe as an example, you were
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  Speaker 1: taking a look at one of the oil drilling stocks
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  Speaker 1: at Wood Oceanics. Tell us about how that exemplifies your strategies. Sure, Actually,
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  Speaker 1: at what is the first stock I did buy in
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  Speaker 1: the energy business? In V six, I first bought the company,
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  Speaker 1: so I have a very long history with the company
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  Speaker 1: in the business. The one thing I will tell you
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  Speaker 1: that's negative about the business is UH, it is uh
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  Speaker 1: there are no barriers to entry in the business. And
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  Speaker 1: you know, one of the large players in businesses seed Drill,
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  Speaker 1: wasn't in business ten years ago, so that's one thing
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  Speaker 1: you have to bear in mind. Uh. And a number
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  Speaker 1: of years ago we realized that this was going to
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  Speaker 1: be a problem and sold down our interest. But more recently,
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  Speaker 1: what we think is the valuations today, Uh, we think
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  Speaker 1: the earnings power of the business is six dollars a share.
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  Speaker 1: We think we understand the fleet having invested in it
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  Speaker 1: for all that time, and really think fleet dynamics are
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  Speaker 1: supply is declining because the old vessels are not competitive,
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  Speaker 1: are going away, and we think the demand will be
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  Speaker 1: there because we think deep water exploration development is still
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  Speaker 1: something that is part of the major's UH. Combination of
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  Speaker 1: how they produce well, so that just under ten dollars
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  Speaker 1: a share nine dollars in eighties six cents, you say
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  Speaker 1: that the company is gonna earn six dollars a share. Right,
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  Speaker 1: the the fleet is a relatively small fleet, but it's
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  Speaker 1: all new equipment and so therefore it has thirty year
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  Speaker 1: life to it. And that's what it is if you've
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  Speaker 1: got supply demand balance of the fleet, and we think
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  Speaker 1: that that happens sometime over the next few years. When
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  Speaker 1: that happens, exactly, we're out exactly sure, uh, And but
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  Speaker 1: we also believe the balance sheet is such that they
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  Speaker 1: have the staying power that they're gonna be there when
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  Speaker 1: those earnings do come to play. All right, Now they're
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  Speaker 1: based in Houston. Now I'm gonna take you across the ocean,
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  Speaker 1: and i want you to focus on a company. It's
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  Speaker 1: based in London, uh, Subsea seven, but it's a Norwegian company.
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  Speaker 1: What drew you to Subsea seven, what drew is to
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  Speaker 1: Subsea seven was that with Oceanics so understanding the all
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  Speaker 1: shore drilling business and how all shore development works, and
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  Speaker 1: there is no barrier to entry in that business. Subsea
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  Speaker 1: seven we can trust as a business that has a
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  Speaker 1: barrier to entry and people don't perceive that, uh, and
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  Speaker 1: so we think that's a very significant part of it.
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  Speaker 1: We also think, of course today there's a number of
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  Speaker 1: positive attributes. Subsea seven has a very strong balance sheet
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  Speaker 1: four five hundred six hundred million in net cash on
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  Speaker 1: the balance sheet. It's competitors over the last few years,
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  Speaker 1: A couple of them have gone out of business, a
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  Speaker 1: couple others of badly damaged. So the competitive landscape is
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  Speaker 1: significantly improved for the company. The capital intensity of the
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  Speaker 1: business has gone down because there's plenty of vessels, but
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  Speaker 1: it's not a vessel based businesses and engineering uh expertise
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  Speaker 1: business and there are very few people there are only
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  Speaker 1: three people in the top tier. So those are all
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  Speaker 1: attributes that kind of come together that we could make
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  Speaker 1: it extremely low valuation, strong balance sheet, uh inside our
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  Speaker 1: ownership of stock, so a very compelling investment today. All right,
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  Speaker 1: So a sub side is seven uh so far this
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  Speaker 1: year still room to run. Uh sure if stocks down
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  Speaker 1: from twenty seven dollars to you know, it's up at
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  Speaker 1: eleven today. So and that's what we think. The earnings
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  Speaker 1: power of the business has improved in the downturn. The
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  Speaker 1: competitive landscape. Its further differentiated them from their competitors. The
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  Speaker 1: nature of fields and getting costs down and being more
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  Speaker 1: engineering oriented and focused means they have a higher value contribution.
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  Speaker 1: They partnered with UH with slumberget in the downturn too,
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  Speaker 1: so very strong relationships and very differentiated UH proposition to
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  Speaker 1: their customers. Tell us a little bit about master limited partnerships.
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  Speaker 1: What should people be wary of? Give you about seconds
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  Speaker 1: or so, sure you know. Master limited partnerships are, of
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  Speaker 1: course a formula for a disaster. You have capital allocators
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  Speaker 1: who are incented. They get fifty of the upside of
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  Speaker 1: the osmins they make. You have investment bankers who are
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  Speaker 1: great at raising capital UH. And of course, a year
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  Speaker 1: or two ago in this space, it was very low
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  Speaker 1: costs because people wore starved for yield. People didn't understand
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  Speaker 1: the investment risks, so it's a you know, and of
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  Speaker 1: course you had investors who were dying for risk. So
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  Speaker 1: all those things came together and then they told the
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  Speaker 1: story where you could have your cake you needed to.
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  Speaker 1: We could distribute out all of these earnings and yet
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  Speaker 1: grow the business. You can't do both things Capitals Limited.
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  Speaker 1: Thank you very much, Bob, Robody, founder and President of
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  Speaker 1: Robody and Company, talking about deep value in looking for
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  Speaker 1: oil in deep places sub Sea seven as well as
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  Speaker 1: Atwood Oceanics. You're listening to taking Stock. I'm pim Fox.
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