CVEO - Civeo

[krazeenyc]

For you to be able to take a tax loss (at least in Canada and US) the stock has to SETTLE before year-end. Therefore the last day to sell Canadian stocks and qualify was Dec 24th and Dec 26th in the US. Therefore price action since Monday should have nothing to do with taxes.

 

http://fairmark.com/capgain/lastday.htm

 

 

[jschembs]

For you to be able to take a tax loss (at least in Canada and US) the stock has to SETTLE before year-end. Therefore the last day to sell Canadian stocks and qualify was Dec 24th and Dec 26th in the US. Therefore price action since Monday should have nothing to do with taxes.

 

Are you sure about that? Granted this is the result of my 5-second search, but that doesn't sound right to me:

 

http://fairmark.com/capgain/lastday.htm

[Ham Hockers]

I know this is a value board but I'll throw this out there. A day before year end every holder has a large tax loss and a day and a half to take it. I think at 4 it's oversold for tax reasons and there's a good shot of a bounce in the new year.

 

I think this is wishful thinking. It's hard to get to the volume traded today without some of the big institutional guys selling, and they just really aren't that tax sensitive.

[krazeenyc]

CVEO's forecast for FY 2015 is $540-600MM of Revenue and $135 - $160MM of EBITDA.  The problem is that's not the run rate you're looking at going forward at the end of 2015 (assuming conditions persist -- of course things could change).  The projected 2015 ebitda is front loaded -- Q1 you're looking at $50MM Ebitda and 30% ebitda margins. By Q4 you are looking at 25MM ebitda and 20% margins.  With only a $100MM ebitda run rate and roughly $75MM of CAPEX you are cash flow negative. CVEO is basically trading 9x EV/Ebitda trough earnings (hopefully) -- that's not bad as long as demand for their lodging eventually recovers and ebitda normalizes to.... (insert number).  The strength of the US Dollar is also killing CVEO by the way.

 

No Position (thankfully).

[matts]

For you to be able to take a tax loss (at least in Canada and US) the stock has to SETTLE before year-end. Therefore the last day to sell Canadian stocks and qualify was Dec 24th and Dec 26th in the US. Therefore price action since Monday should have nothing to do with taxes.

 

Are you sure about that? Granted this is the result of my 5-second search, but that doesn't sound right to me:

 

http://fairmark.com/capgain/lastday.htm

 

Hmm, Ok I'm sure it's based on settlement date for Canadian tax purposes. Guess it is trade date for IRS purposes? Learn something new every day! (although i hope to never be caught in the mess that is the US tax system). Thanks for catching that.

 

 

[CorpRaider]

Used to be like that in US, was frankly a trap for the unaware.

[Picasso]

So OIS is at $49 and shareholders were given 2 shares per OIS share for a presplit price of around $57.  I think Einhorn and other hedgies were pitching this at $90?

 

I can understand this is a value board and such, but I just don't see how the thesis at $90 for OIS or $30 for CVEO is not completely broken here.  I absolutely hate when investors form a thesis at a much higher price and then when the price takes a beating they form another thesis.  The thesis keeps changing to always make the security look cheap. 

 

From my standpoint the original view was dead wrong and you have to look at the stock not as having dropped versus a previous price but as a new thesis based on the current price.  When you assume everything you previously thought about the stock was wrong, it usually means you move on to another stock.  In CVEO's case you have a billion dollar EV which will be lucky to do $150 million in future EBITDA.  How do you justify investing in this kind of business at that price?

 

As always there are very interesting things to learn from this debacle.  The most obvious being anything tied to a commodity boom cycle should probably trade at below average multiples.

[Guest notorious546]

good ol' thesis drift.

[yadayada]

Krazee why is strength of dollar killing CVEO?

 

Why the hell is this trading so low? They can keep off capex? They got 245m in cash? Positive working capital?  It is trading like they will go out of business and have to liquidate their equipment at 60-70% discounts... What am i missing here? Some hidden liability i did not see?

 

they can keep off probably a decent part of their capex for 1-2 years.

 

Net cash before working capital was 360m in 2013. They can fire people or probably sell some equipment? So basicly the market thinks coal and oil sands are most likely history.

 

Seems like revenue needs to fall of a cliff, they would not be able to fire people and capex might not be optional (destroying business if they keep it off). So before debt holders would force them to liquidate they would have to burn through almost half a billion$. Which seems unlikely to happen in 1-2 or even 3 years.

[jwelborn93]

Listening to the call yesterday, it seems like the problem for CVEO going forward is that demand for their services is tied to exploration projects within oil sands, as the CEO stated that 5-6x more people are needed during exploration projects compared to operations after production is underway. Before the call I personally did not understand this and thought that there would continue to be relatively stable demand for their accommodations, as it is so difficult to shut down these sands operations like someone previously mentioned. But with producers cutting much of their exploration capex within both Canada and Australia it seems that CVEO has their work cut out for them. Therefore, it seems that Civeo right now is a bet that oil prices will return to the point where producers are incentivized to continue developing new projects, and who knows when that could happen.

 

 

 

 

[dbuch]

So OIS is at $49 and shareholders were given 2 shares per OIS share for a presplit price of around $57.  I think Einhorn and other hedgies were pitching this at $90?

 

I can understand this is a value board and such, but I just don't see how the thesis at $90 for OIS or $30 for CVEO is not completely broken here.  I absolutely hate when investors form a thesis at a much higher price and then when the price takes a beating they form another thesis.  The thesis keeps changing to always make the security look cheap. 

 

From my standpoint the original view was dead wrong and you have to look at the stock not as having dropped versus a previous price but as a new thesis based on the current price.  When you assume everything you previously thought about the stock was wrong, it usually means you move on to another stock.  In CVEO's case you have a billion dollar EV which will be lucky to do $150 million in future EBITDA.  How do you justify investing in this kind of business at that price?

 

As always there are very interesting things to learn from this debacle.  The most obvious being anything tied to a commodity boom cycle should probably trade at below average multiples.

 

 

How did the thesis change? I don't think the company will be stuck permanently at $150 million Ebitda. You can look at the past 10 years Ebitda margin and it's been pretty consistent. They can reduce employees and close lodges and probably bring margins back up.

[krazeenyc]

Krazee why is strength of dollar killing CVEO?

 

Why the hell is this trading so low? They can keep off capex? They got 245m in cash? Positive working capital?  It is trading like they will go out of business and have to liquidate their equipment at 60-70% discounts... What am i missing here? Some hidden liability i did not see?

 

they can keep off probably a decent part of their capex for 1-2 years.

 

Net cash before working capital was 360m in 2013. They can fire people or probably sell some equipment? So basicly the market thinks coal and oil sands are most likely history.

 

Seems like revenue needs to fall of a cliff, they would not be able to fire people and capex might not be optional (destroying business if they keep it off). So before debt holders would force them to liquidate they would have to burn through almost half a billion$. Which seems unlikely to happen in 1-2 or even 3 years.

 

They earn money in Canadian dollars and Australian dollars -- they have debt in US dollars. Since July the Canadian dollar is down almost 10% and the Australian dollar is down nearly 15%. That can't be good.

 

I've been looking at this since before the OIS spin. I could never get comfortable with CVEO being valued as a traditional real estate company  (and never pulled the trigger) because I was uncertain what would happen to their revenue if the price of oil declined (It's not that I could have predicted this -- I just didn't know). These man camps I think also have a higher maintenance capex than traditional real estate.  I think it's clear that CVEO should not be valued like a traditional real estate company -- but what kind of multiple it deserves on its normalized ebitda --  I'm not sure -- 7-8x?

 

Right now I think the company is being priced at 9.5x of trough ebitda of $100MM run rate (end of 2015).  It's not unreasonable to think that CVEO might be a good investment here, but you basically have to have the view that the current oil environment is going to be short lived.  If you think normalized ebitda is $200MM -- at an 8x multiple you have 150% upsided?  One plus the company has going for it is that with Einhorn and Jana stuck in the stock, I think it's fair to assume capital allocation will be good. 

 

Despite the massive price drop, I'm still on the fence.

[mateo999]

Barry.... out!

[krazeenyc]

Barry.... out!

 

YEP!

 

http://www.sec.gov/Archives/edgar/data/1159159/000090266414004721/p14-2409exh99.htm

 

[mateo999]

What's interesting is one of Jana's 3 board seats resigned 2 months after his 10/24 start date.  Hindsight is 20/20, but I wonder if the 12/24 8-K should have been a tell that this was a short.  I'm disappointed in myself for not catching that filing (and it looks like it wasn't mentioned on this thread either). Oh well.  On a somewhat related note: any there any compellingly obvious oil related (direct or indirect) shorts still out there?

[constructive]

On a somewhat related note: any there any compellingly obvious oil related (direct or indirect) shorts still out there?

 

EOPT, MHR, MRD, EPM, LNG

[mateo999]

Thank you!

[gfp]

What's interesting is one of Jana's 3 board seats resigned 2 months after his 10/24 start date.  Hindsight is 20/20, but I wonder if the 12/24 8-K should have been a tell that this was a short.  I'm disappointed in myself for not catching that filing (and it looks like it wasn't mentioned on this thread either). Oh well.  On a somewhat related note: any there any compellingly obvious oil related (direct or indirect) shorts still out there?

 

footnoted.org called out the red flag on the board resignations before the shares collapsed

[Guest notorious546]

looks like Jana sold out.

 

http://whalewisdom.com/schedule13d/view/jana-partners-llc-sc-13da-2014-12-31-cveo

 

[AJDelphi]

Listening to the call yesterday, it seems like the problem for CVEO going forward is that demand for their services is tied to exploration projects within oil sands, as the CEO stated that 5-6x more people are needed during exploration projects compared to operations after production is underway. Before the call I personally did not understand this and thought that there would continue to be relatively stable demand for their accommodations, as it is so difficult to shut down these sands operations like someone previously mentioned. But with producers cutting much of their exploration capex within both Canada and Australia it seems that CVEO has their work cut out for them. Therefore, it seems that Civeo right now is a bet that oil prices will return to the point where producers are incentivized to continue developing new projects, and who knows when that could happen.

 

I had never caught that a lot of the accommodations were used for construction workers either. Made me think the business was much more stable than it actually is. Was by far the biggest hole in my investment thesis.

[Ralf]

At low end of management guidance, company will breach 3.5x debt covenant....in process of renegotiating debt in conjunction with move to Canada...but at the mercy of its debt holders

[wjsco]

At low end of management guidance, company will breach 3.5x debt covenant....in process of renegotiating debt in conjunction with move to Canada...but at the mercy of its debt holders

 

True. the thing is, really its a canadian company - thats why they redomiciled. and all the executives and bankers who live in canada live in vancouver and their kids go to school together. and they're really friendly and that stuff bc theyre canadian. so, why not expand the debt/ebitda covenant from 3.5x to 5.5 ? Ya know? well, thats what their lender did - pretty generous debt holder, in my opinion. the 5.5x comes down by .25x every 6 months starting 12/31/16 - just so accomodative.

 

people are looking at this company and saying: oh, theyr exposed to australia met coal and the highest cost oil production in the world, and most of their sales are from construction not production employees, so theyre screwed bc oilsands E&P is off the table with LT outlook for oil at this level. BUT, what they're missing is a corolary to low oil prices - cheap gas basins, super favorable geographic location on the west coast relative to asia - LNG. petronas has alrdy dumped $12-14b of $40b on their LNG shipping project. thats a huge sunk cost. yes, shell delayed their FID, but the reason was capital constraints, not that those LNG facilities won't be lucrative long term. and australia met coal - yea, china and all that. but take a longer term view - australia is, again, geographically in a favorable location relative to asia. and coal production costs are low. so both of these areas that cveo operate in should be competitive over the long term. high cost producer go out, production shifts back to low cost producers, voila.

 

the only question is whether theyll go bankrupt. maybe in a few years, but they do seem to have an awful lot of levers to pull. i mean, also think of this - Shell / Petronas, etc. aren't going to give an accomodation contract for a facility they expect to operate for 40 years to a company that will go bankrupt in 2 years. just not going to happen i dont think. and, theyve already landed both of those contracts (w/ petronas and shell).

 

 

[wjsco]

canadian nat gas is quickly becoming a trapped resource. they used to export to n america, but that is pretty much ending. i would bet that, beyond the sunk-costs related to LNG development, alot of companies have a lot of nat gas investments in canada for various reasons and are very interested in ensuring that nat gas finds a market.

 

but it doesn't just mean building the LNG liquefaction facilities and trains or w/e. it also means building the pipelines. it also means developing shit tons of natural gas fields to be able to supply those facilities for 40 years.

 

Look, Bruce Flatts (BAM) owns a set of offshore oil wells/fields in Western Australia, and I believe coal-bed methane gas deposits in Western Canada. Coincidence? I think not. His company owns power generation and utility infrastructre - they have the best view on this kind of stuff in the entire world. and those are the natural gas assets they picked - western australia, western canada. bingo

[JayGatsby]

people are looking at this company and saying: oh, theyr exposed to australia met coal and the highest cost oil production in the world

I'm not convinced of that. I'd like to see another few years of horizontal drilling to really understand the economics. As far as I can tell a lot of money went into the ground and not a lot has come out yet. Oil sands aren't cheap but they're proven over a full investment cycle.

[Foreign Tuffett]

people are looking at this company and saying: oh, theyr exposed to australia met coal and the highest cost oil production in the world

I'm not convinced of that. I'd like to see another few years of horizontal drilling to really understand the economics. As far as I can tell a lot of money went into the ground and not a lot has come out yet. Oil sands aren't cheap but they're proven over a full investment cycle.

 

The consensus in the industry is that the "core of the core" of the best shale plays have full cycle economics that are far superior to the Canadian oil sands. Ditto for shale vs deepwater. Look at where Conoco is investing drilling capex for one example.