WEATHERFORD INTL PLC WFTIF
December 17, 2019 - 3:12pm EST by
bedrock346
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 $M): 1,565 EBIT 0 0
TEV ($): 2,965 TEV/EBIT 0 0

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Description

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

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

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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