2019 | 2020 | ||||||
Price: | 20.00 | EPS | 0 | 0 | |||
Shares Out. (in M): | 70 | P/E | 0 | 0 | |||
Market Cap (in $M): | 1,400 | P/FCF | 0 | 0 | |||
Net Debt (in $M): | 1,565 | EBIT | 0 | 0 | |||
TEV (in $M): | 2,965 | TEV/EBIT | 0 | 0 |
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Weatherford (“WFT”)
Description
Weatherford (“WFT”) is the number three player in the oil service market. The question post energy Armageddon is whether this is really only a two player market. After missing numbers for years and taking on debt for acquisitions, WFT filed for Chapter 11 early this year. Their plan was finally confirmed on Friday, December 12th. The stock currently trades in the pink sheets with a plan to relist on the NYSE.
To put it mildly, WFT has struggled for a number of years. The new CEO was brought in as a savior from Halliburton and even he couldn’t right the ship. Just as the Company was about to exit Chapter 11, the Company materially cut Revenue and EBITDA forecasts and cut the bondholder share of new notes way back.
Just before plan confirmation, the bonds were trading at 26 which pits roughly 73% of their recovery in the still leveraged common shares. The plan also forced a bond rights offering, where you had to fund 22 cents of new debt on bonds that trade in the 20s. The Company was well shopped and only minor assets traded. At current levels, you are creating Newco for roughly 5x this year’s plan EBITDA and 4x next year. For some odd reason, some on the sell side are still using old plan numbers. I am using the current plan. The Company’s crown jewel assets is well construction which generates more than half of EBITDA and is 60-70% leveraged to offshore drilling. Should oil spike and sustain to the $80-100 range, you could see EBITDA spike to the high end plan of close to a billion dollars in the out years. I am not counting on that. A blend of 2019’s EBITDA of $580mm and 2020’s $750mm EBITDA is as far as I am willing to go. The other units are also leveraged to higher oil prices, but none more so than this one.
Haliburton by contrast is trading at 8.5x ’19 and 8.1x ’20 EBITDA and pays you 3%. Schlumberger trades at 10.5x and 10.1x ’19 and ’20 and pays a 5% yield. Both industry leaders have had massive moves off the lows where WFT is basically on its lows (the bonds briefly ticked at 24 and were impossible to buy). If you believe as I do that a 20% discount to HAL is warranted, Newco should trade about 6.5x 2020 or $47.37 per share. A more than 100% return from here. Debt holders should be happy to sell it to you for a while until the massive unwanted supply is dried up. I wouldn’t wait that long, but think this is an interesting trade into the $30s for the January effect and energy rebound.
Weatherford Post Reorg. Equity |
||||||||
($ in millions except per share) |
||||||||
As Per Revised Disclosure statement (10/1/19) |
||||||||
Net Debt Analysis |
||||||||
Rights Debt |
$1,600 |
|||||||
Takeback Debt |
$500 |
|||||||
Gross Debt |
$2,100 |
|||||||
Less: Unrestricted Cash |
-$535 |
|||||||
Net Debt |
$1,565 |
|||||||
Old Debt Claim |
$7,428 |
|||||||
New Shares |
70 |
|||||||
New Share Price |
20 |
EV/EBITDA |
||||||
Equity Cap |
1,400 |
2019 |
2020 |
2021 |
2022 |
|||
EV |
2,965 |
5.12 |
3.95 |
3.29 |
3.12 |
|||
Old Shares |
1,004 |
|||||||
New Warrants |
7 |
|||||||
New Warrants Per Old Shares |
0.007 |
|||||||
New Shares Per Old Share |
0.001 |
|||||||
Projected Income Statement |
2019 |
2020 |
2021 |
2022 |
||||
Revenue |
$5,348 |
$5,175 |
$5,452 |
$5,615 |
||||
Less: |
Cost Inventory and Field Costs |
-4,299 |
-4,013 |
-4,127 |
-4,228 |
|||
R & D |
-148 |
-155 |
-163 |
-168 |
||||
Segment and Corporate G & A |
-322 |
-256 |
-262 |
-270 |
||||
Adjusted EBITDA |
$579 |
$751 |
$900 |
$949 |
||||
Less: |
Cash Taxes |
-146 |
-149 |
-159 |
||||
CapX |
-260 |
-270 |
-270 |
|||||
Change in NWC |
107 |
-120 |
-65 |
|||||
Change in other Assets/Liabilities |
59 |
41 |
25 |
|||||
Unleveraged FCF |
$511 |
$402 |
$480 |
|||||
Less: |
Cash Interest |
-232 |
-232 |
-232 |
||||
Non- Recurring |
-80 |
- |
- |
|||||
Other Cash Flow Items |
-48 |
-62 |
-67 |
|||||
Total Change in Cash |
$151 |
$108 |
$181 |
|||||
Beginning Cash |
$535 |
$686 |
$794 |
|||||
Ending Cash |
$686 |
$794 |
$975 |
|||||
Net Debt |
$1,414 |
$1,306 |
$1,125 |
|||||
Revenue Growth |
NA |
-3.20% |
5.40% |
3.00% |
||||
COGS % |
80.40% |
77.50% |
75.70% |
75.30% |
||||
R & D % |
2.80% |
3.00% |
3.00% |
3.00% |
||||
SGA % |
6.00% |
4.90% |
4.80% |
4.80% |
||||
EBITDA Margin |
10.80% |
14.50% |
16.50% |
16.90% |
||||
Enterprise Valuation (Based on 2019 net debt and range of EBITDA) |
||||||||
EBITDA |
$579 |
$751 |
$900 |
$949 |
$1,000 |
|||
EV@ |
4 |
x |
$2,316 |
$3,004 |
$3,600 |
$3,796 |
$4,000 |
|
5 |
x |
$2,895 |
$3,755 |
$4,500 |
$4,745 |
$5,000 |
||
6 |
x |
$3,474 |
$4,506 |
$5,400 |
$5,694 |
$6,000 |
||
7 |
x |
$4,053 |
$5,257 |
$6,300 |
$6,643 |
$7,000 |
||
Less: Net Debt |
-$1,565 |
-$1,565 |
-$1,565 |
-$1,565 |
-$1,565 |
|||
Equity Cap @ |
4 |
x |
$751 |
$1,439 |
$2,035 |
$2,231 |
$2,435 |
|
5 |
x |
$1,330 |
$2,190 |
$2,935 |
$3,180 |
$3,435 |
||
6 |
x |
$1,909 |
$2,941 |
$3,835 |
$4,129 |
$4,435 |
||
7 |
x |
$2,488 |
$3,692 |
$4,735 |
$5,078 |
$5,435 |
||
Value Per Share @ |
4 |
x |
$10.73 |
$20.56 |
$29.07 |
$31.87 |
$34.79 |
|
70 |
5 |
x |
$19.00 |
$31.29 |
$41.93 |
$45.43 |
$49.07 |
|
mm shares o/s |
6 |
x |
$27.27 |
$42.01 |
$54.79 |
$58.99 |
$63.36 |
|
7 |
x |
$35.54 |
$52.74 |
$67.64 |
$72.54 |
$77.64 |
||
Bond Valuation |
||||||||
Bond Market Price @ |
$22.00 |
$24.00 |
$26.00 |
$28.00 |
$30.00 |
|||
Gross Note Claim |
$7,428 |
$7,428 |
$7,428 |
$7,428 |
$7,428 |
|||
Market Value of Notes |
$1,634 |
$1,783 |
$1,931 |
$2,080 |
$2,228 |
|||
Less: Takeback Note |
-500 |
-500 |
-500 |
-500 |
-500 |
|||
Note Equity Value |
$1,134 |
$1,283 |
$1,431 |
$1,580 |
$1,728 |
|||
Implied Value of Common @ |
99% |
$1,146 |
$1,296 |
$1,446 |
$1,596 |
$1,746 |
||
Implied Per Share Creation |
$16.37 |
$18.51 |
$20.65 |
$22.80 |
$24.94 |
|||
EBITDA |
$579 |
$751 |
$900 |
$949 |
$1,000 |
|||
Note New Equity Value @ |
4 |
x |
743 |
1,425 |
2,015 |
2,209 |
2,411 |
|
99% |
5 |
x |
1,317 |
2,168 |
2,906 |
3,148 |
3,401 |
|
Of New Common |
6 |
x |
1,890 |
2,912 |
3,797 |
4,088 |
4,391 |
|
7 |
x |
2,463 |
3,655 |
4,688 |
5,027 |
5,381 |
||
Plus: Takeback Bonds |
$500 |
$500 |
$500 |
$500 |
$500 |
|||
#ERROR! |
4 |
x |
$1,243 |
$1,925 |
$2,515 |
$2,709 |
$2,911 |
|
5 |
x |
$1,817 |
$2,668 |
$3,406 |
$3,648 |
$3,901 |
||
6 |
x |
$2,390 |
$3,412 |
$4,297 |
$4,588 |
$4,891 |
||
7 |
x |
$2,963 |
$4,155 |
$5,188 |
$5,527 |
$5,881 |
||
% Total Note Recovery @ |
4 |
x |
17% |
26% |
34% |
36% |
39% |
|
5 |
x |
24% |
36% |
46% |
49% |
53% |
||
6 |
x |
32% |
46% |
58% |
62% |
66% |
||
7 |
x |
40% |
56% |
70% |
74% |
79% |
||
Equity Valuation |
||||||||
WFT Trading Range |
$0.03 |
$0.03 |
$0.04 |
$0.04 |
$0.05 |
|||
WFT Creation of New Common |
$37.30 |
$44.47 |
$51.64 |
$58.81 |
$65.98 |
|||
EBITDA |
$579 |
$751 |
$900 |
$949 |
$1,000 |
|||
Gross Value for Old Equity @ |
4 |
x |
$8 |
$14 |
$20 |
$22 |
$24 |
|
1.00% |
5 |
x |
$13 |
$22 |
$29 |
$32 |
$34 |
|
of New Common |
6 |
x |
$19 |
$29 |
$38 |
$41 |
$44 |
|
7 |
x |
$25 |
$37 |
$47 |
$51 |
$54 |
||
Value Per Share for Old Equity @ |
4 |
x |
$0.01 |
$0.01 |
$0.02 |
$0.02 |
$0.02 |
|
5 |
x |
$0.01 |
$0.02 |
$0.03 |
$0.03 |
$0.03 |
||
6 |
x |
$0.02 |
$0.03 |
$0.04 |
$0.04 |
$0.04 |
||
7 |
x |
$0.03 |
$0.04 |
$0.05 |
$0.05 |
$0.05 |
Entry catalyst of debtholders throwing in the towel. Exit catalyst would be value energy buyers and other value buyers play multiple arbitrage, or a sale to PE or strategic though as I said it has been shopped many times. It’s a chronic underachiever so don’t wait too long to get out.
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