|Shares Out. (in M):||8||P/E||0.0x||0.0x|
|Market Cap (in $M):||96||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||38||EBIT||0||0|
The recently announced deal with TGC Industries
A look back at how the combined companies have performed (revenue, ebit, ebitda, proforma ebit*)
2005 147.5, 20.8, 32.2, 28.9
2006 236.3, 38.9, 61.7, 51.3
2007 348.2, 56.7, 87.5, 75.4
2008 411.7, 67.9, 106.0, 89.8
2009 334.4, 21.0, 61.7, 40.3
2010 313.6, (14.4), 28.0, 5.9
2011 484.3, 14.8, 64.5, 44.5
2012 515.6, 43.4, 101.3, 72.7
2013 439.8, 12.8, 74.5, 38.4
YTD 292.2, (16.5), 28.1, 5.9
*The company has guided to a range of 5-10% savings through the opex line and little through sg&a. We're using the midpoint of 7.5%
Valuation for Dawson/TGC Newco
Market Cap (TGE share price *3*21.5mm shares): 146mm
Neither company has historically offered guidance and our crystal ball is decidely murky. We're using the recently filed merger doc as a starting point and making some tweaks to that based on recent comments and performance. From the proxy:
Net Income: (2.1)
Our guess is that revenue is too high as is capex. On recent calls DWSN alludes to a 10-13mm # for them as a standalone entity and another 2-3mm for TGE so we think there could be a 10mm fcf cushion somewhere in the numbers. We think that d&a should outstrip capex by 40mmish. Perhaps 25-30mm of that fcf tailwind will fund an ebit loss in a lousy year leaving 10-15mm of fcf or .46-70/share to build on the balance sheet. Looking forward a year that would mean we'd have a $6.85 stock price (Current TGE *3) with $2.65-2.90 of cash on the books.
We don't engender to estimate how high is up, but in looking at the historical operating metrics, should the company's performance even remotely rhyme, we think there's meaningful upside.
Interestingly, two of the firms that cover Dawson are making rather conspicuous math errors in deriving their price targets. We're not quite sure how to explain it but would assume that in times of severe market dislocation it's easier to overlook mistakes. There's probably also something to be said for being anchored to a stock price despite the contrary result of ones own analysis.
The first firm attempts to calculate an NAV for the newco preferring a market-based approach over cashflow metrics.
They calculate an NAV for the combined entity of $24/share by using $1,000/channel and $600,000/veisotruck and add in the roughly $2.50/share of net cash (the report is from mid October, before both companies reported their latest quarters showing a slight burn).
Due to the tough environment for seismic, their target of $21 is 80% of what they deem to be replacement value (we would call that 87% of NAV). We agree that the 519mm of NAV value is correct, and does equate to $24/share. However, Dawson, as it's currently trading is not the same as the newco. That kind of goes without saying. NAV for DWSN is actually $42/share and their target of 80% of NAV should be $33.60 which is nearly a triple from here. Given that the combined market cap for both companies is a tad under 150mm that foots better instinctively with the 519mm figure.
The other firm uses estimates that are higher than ours but, regardless, their math is incorrect, and again, equates the new company with DWSN's current trading level. Their approach is:
2015E EBITDA: 65.2 *4= 262+65mm of cash (again, not sure where this number comes from)=327mm/18.1 (we think the number should be 21.5mm)=$18
Setting aside the imputs, the $18 figure represents what the new company should be trading for---NOT what Dawson currently represents. They needed to take the $18 figure and multiply by 1.78 to get $32/share as their price target.
Indiscriminate selling in the seismic space, without regard for differences in balance sheets or business models, allows one to invest in a debt free-market leader at undemanding multiples at a depressed point of the cycle at a time where they're gaining share. While the near, and perhaps medium, term is likely to be challenging, it is our contention that the combined company will have the liquidity to make it to the other side and prosper.