Falcon Energy (5FL.SI) - One of the forefront in offshore marine and also O&G sector. It is divided into 5 business sectors namely, Marine, Oilfield Services, Drilling Services, Resources Division and one more that I couldn't find (LOL!). All this, you can read from their company website. Essentially, Falcon Energy feels like Nordic Group which provides O&G support services yet has a more direct exposure to oil prices through the Drilling Services and Resources Divisions.
I started searching for an O&G company as I wanted to gain some exposure to the potential oil price movements. Truthfully speaking, I did not do any deep research into oil prices. But seeing how far it has come down and the relative stability now, I wanted to capture some gains when the industry move into the up-cycle again. And I chanced upon this stock - a rare profit-making O&G company amidst the gloom and doom. Below are some of the points I like about this company:
1. Financial Metrics
Easiest go-to method to valuate a company from the surface. Was really too lazy to predict cash flows with expected oil prices etc. The ratios I calculated were really impressive till I started to doubt the going concerns of the company (the ratios were like that of a distressed company)!Based on the time I did my calculations, where the price was at 17.2 cents and data obtained from the latest FY report,
EPS: 6.45 US cents
P/E: 1.975
P/B: 0.348
Debt/Equity: 0.9854
Dividend: $S 0.005 (2.9% yield interim)
In this set of data, it only seem that debt-to-equity ratio is high. I give it leeway as it is expected for O&G company to have significant debt, especially in these trying times. In addition, this 2016 figure is actually lower than 2014 and 2015, having paid off a sum of debt in the latest quarter. P/E and P/B is super impressive and actually needs no explanation. In the final dividend, I will guess that another half cent of dividend will be given out, ending with a near 6% yield. Warren Buffet had always like to buy stocks with significant higher book value and I actually think Falcon Energy fits the criteria.
2. Stake in CH Offshore
Falcon Energy actually owns 86.7% stake in CH Offshore, another listed firm on SGX. When I was doing this research on Falcon Energy, the market cap of the company was 139.2M while that of CH Offshore was 282M (sitting at 275M as of 06/07/16). This means the stake Falcon Energy has in CH Offshore is worth at least 244.5M! That's right, the market is selling the core operations of Falcon Energy for nothing and its stake in CH Offshore is valued at discount! This is the singular most blatant mispricing of Falcon Energy which I didn't believe. And if I calculated wrongly anywhere, please let me know to save me the money and embarrassment.3. Share Repurchases
The company is aggressively doing stock buyback since 17 June 2016. The volume of the stock traded is not high, hence by aggressive, I meant as a percentage of the transacted volume that day. I suspect the company is doing so to meet the minimum trading price of 20 cents and since the volume is so thin, the company is able to do so easily - since there is little sellers blocking the queue. This is an situation that can be taken advantage of as the company is essentially being a guarantor of your entry price. It started doing buying back at ~16.8 cents till 19.5 cents today. In the last 2 days, it seems that there were some public support. As of now, still monitoring closely to see if the company is still going to support at current price.4. Conclusion
I had actually bought in at 17.7 cents on 27 June 2016, which I vaguely remember as the day Brexit occurred. I figured if it did not drop at such a dramatic event, surely it will grow when things got better. As my buy-in capital is small, I am not very tempted to take profit at current price. I hate to write this post as I do not want to jinx it (things are still going well) but in the spirit of sharing and also in the spirit of not being accused of hindsight-predicting, I have decided to write this post in the end.NOTE: This post is not to comply you to buy the above-mentioned stock. Notice the price has actually gone up. Do your own due diligence before you take any action. To make sure you do indeed do your homework.... yes if you buy, you are helping me to prop up the share price!!
Cheers
