Homestead31 Posted June 19, 2015 Share Posted June 19, 2015 Hi Radman - could you provide a link or more info about the short thesis? as i understand it short DNOW is popular in the long short community vs MRC bc DNOW has more exposure to off shore drilling, which is typically higher cost and thus earlier to get cut when oil prices are down... this makes sense on some levels - although the counter of course is that DNOW has the balance sheet to diversify away from offshore as they scoop up weak competitors in the current down turn. i'd be interested to read more about the short side however bc i haven't heard the short case on a standalone basis - only as a counter to long MRC. Thanks Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted June 19, 2015 Share Posted June 19, 2015 One possible negative is that DNOW may never be able to properly integrate its various acquisitions. Yes Pete Miller had some success integrating acquisitions at NOV, but he had massive tailwinds from the offshore rig building boom. The bulk of DNOW was only cobbled together in 2012 from (a) NOV's legacy distribution business (2) CE Franklin and © Wilson Supply. Basically DNOW is several different businesses that management is trying to stitch together with the recent implementation of the SAP ERP system. I work in the energy industry and have seen DNOW in action.........it still has a long way to go. The company may get there, but it very well may not. I don't feel comfortable betting either way. Disclosure: No position Link to comment Share on other sites More sharing options...
MrB Posted June 19, 2015 Share Posted June 19, 2015 Hi Radman - could you provide a link or more info about the short thesis? as i understand it short DNOW is popular in the long short community vs MRC bc DNOW has more exposure to off shore drilling, which is typically higher cost and thus earlier to get cut when oil prices are down... this makes sense on some levels - although the counter of course is that DNOW has the balance sheet to diversify away from offshore as they scoop up weak competitors in the current down turn. i'd be interested to read more about the short side however bc i haven't heard the short case on a standalone basis - only as a counter to long MRC. Thanks Seems less popular today v a few months ago considering cost to borrow came down from low double digits to low single digits. What rates are the board seeing out there? I'm currently seeing 5% Link to comment Share on other sites More sharing options...
mateo999 Posted June 19, 2015 Share Posted June 19, 2015 Seems less popular today v a few months ago considering cost to borrow came down from low double digits to low single digits. What rates are the board seeing out there? I'm currently seeing 5% I just got a 6.5% cost of borrow quote. Link to comment Share on other sites More sharing options...
coc Posted June 19, 2015 Share Posted June 19, 2015 One possible negative is that DNOW may never be able to properly integrate its various acquisitions. Yes Pete Miller had some success integrating acquisitions at NOV, but he had massive tailwinds from the offshore rig building boom. The bulk of DNOW was only cobbled together in 2012 from (a) NOV's legacy distribution business (2) CE Franklin and © Wilson Supply. Basically DNOW is several different businesses that management is trying to stitch together with the recent implementation of the SAP ERP system. I work in the energy industry and have seen DNOW in action.........it still has a long way to go. The company may get there, but it very well may not. I don't feel comfortable betting either way. Disclosure: No position Would you mind going into a little more detail on your vantage point in the industry and what you've seen from DNOW? What makes you say it has a long way to go? Thanks for your input. Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted June 19, 2015 Share Posted June 19, 2015 One possible negative is that DNOW may never be able to properly integrate its various acquisitions. Yes Pete Miller had some success integrating acquisitions at NOV, but he had massive tailwinds from the offshore rig building boom. The bulk of DNOW was only cobbled together in 2012 from (a) NOV's legacy distribution business (2) CE Franklin and © Wilson Supply. Basically DNOW is several different businesses that management is trying to stitch together with the recent implementation of the SAP ERP system. I work in the energy industry and have seen DNOW in action.........it still has a long way to go. The company may get there, but it very well may not. I don't feel comfortable betting either way. Disclosure: No position Would you mind going into a little more detail on your vantage point in the industry and what you've seen from DNOW? What makes you say it has a long way to go? Thanks for your input. I work for a company that has a corporate contract with DNOW that locks us in to ordering most supplies and parts from it. Much of what DNOW seems to do is farm out our orders to other suppliers (drop shipping). Given how slow and disorganized DNOW is, they aren't really adding any value. Link to comment Share on other sites More sharing options...
stahleyp Posted June 19, 2015 Share Posted June 19, 2015 Foreign, Why would your company do the corporate contract if they didn't see value? Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted June 19, 2015 Share Posted June 19, 2015 Foreign, Why would your company do the corporate contract if they didn't see value? Well companies make bad decisions all the time. There's more to the story, but I don't want to reveal my employer. Link to comment Share on other sites More sharing options...
CalvinL Posted June 20, 2015 Share Posted June 20, 2015 I work for a company that has a corporate contract with DNOW that locks us in to ordering most supplies and parts from it. Much of what DNOW seems to do is farm out our orders to other suppliers (drop shipping). Given how slow and disorganized DNOW is, they aren't really adding any value. Thanks for the insight - it's a short summary of what DNOW does. 1. Signed contract that locks customers in to ordering from it 2. Farm out to smaller suppliers and make a cut off the POs Slow and disorganized and seemingly adding no value, and yet dnow was able to lock in 4B of sales, almost 20% market share. Some tricks of the trade might be in play here Link to comment Share on other sites More sharing options...
CorpRaider Posted June 20, 2015 Share Posted June 20, 2015 DNOW > FAST? Link to comment Share on other sites More sharing options...
Phaceliacapital Posted June 21, 2015 Author Share Posted June 21, 2015 DNOW > FAST? In terms of what? Operations, valuation, upside? Link to comment Share on other sites More sharing options...
RadMan24 Posted June 22, 2015 Share Posted June 22, 2015 Hi Radman - could you provide a link or more info about the short thesis? as i understand it short DNOW is popular in the long short community vs MRC bc DNOW has more exposure to off shore drilling, which is typically higher cost and thus earlier to get cut when oil prices are down... this makes sense on some levels - although the counter of course is that DNOW has the balance sheet to diversify away from offshore as they scoop up weak competitors in the current down turn. i'd be interested to read more about the short side however bc i haven't heard the short case on a standalone basis - only as a counter to long MRC. Thanks Seems less popular today v a few months ago considering cost to borrow came down from low double digits to low single digits. What rates are the board seeing out there? I'm currently seeing 5% It's attached on page 4 of this forum, his target was around $20 a share, which is where its at now. I'd be cautious on just one view of the industry, they do over $4 billion in sales, but as rig count falls, so will their revenue. No customer is over 10%, but the main risk to the upside is that they are not able to integrate acquisitions well or execute their strategy. Link to comment Share on other sites More sharing options...
AzCactus Posted June 30, 2015 Share Posted June 30, 2015 At this point---this is my largest position. I think you have top notch management who views a business the correct way. They are opportunistic and patient, but also compensated in a way that makes sense to me. I have continually tried to think of how this idea could fail long term and have not been able to do it. While the short thesis presented some interesting points, the stock currently trades even below that suggested level I believe. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted June 30, 2015 Share Posted June 30, 2015 HOUSTON--(BUSINESS WIRE)--NOW Inc. (NYSE:DNOW) announced today that it has entered into an agreement to purchase Odessa Pumps and Equipment, Inc. Terms of the all-cash transaction, which remains subject to customary closing conditions, including regulatory approval, were not disclosed. The company manages a distribution business of approximately 13 sales and operations locations across Texas, New Mexico and Oklahoma. Odessa employs approximately 300 employees. http://www.businesswire.com/news/home/20150630005439/en/#.VZMLZvlVhBc Link to comment Share on other sites More sharing options...
spartansaver Posted July 10, 2015 Share Posted July 10, 2015 Seems like a great opportunity to play oil without having to touch oil. If oil remains depressed the company benefits by rolling up at depressed prices and if oil rises will likely see correlated rise in price of DNOW. Link to comment Share on other sites More sharing options...
KCLarkin Posted July 16, 2015 Share Posted July 16, 2015 I started a small position today and will add slowly over the next few months. Given the limited history as a standalone company, it is difficult to get comfortable with the valuation. It is certainly worth $15-20 but I'd expect more distress given oil prices. Link to comment Share on other sites More sharing options...
AzCactus Posted July 27, 2015 Share Posted July 27, 2015 I think when you combine: The generally low level of oil prices Management that has the right incentives Management that has the ability to buy companies at lowish valuations At this price (approx 18) there really is only one question and that is how long oil prices stay depressed ? Link to comment Share on other sites More sharing options...
Homestead31 Posted July 27, 2015 Share Posted July 27, 2015 i tend to agree, and of course that question is un-knowable, despite what all the experts say. from my seat, the second level thinking says the longer oil stays low, the better for DNOW b/c they have the balance sheet and scale to survive the down turn better than the mom and pops that make up most of the industry. my second level view on oil from 40,000 feet is that ~$100 per barrel is likely again within 5 years due to an unknowable combination of low prices being the best cure for low prices, continued global growth, continued reserve depletion, and the impact of ISIS and social unrest due to low oil prices in the middle east. basically, i think that if oil stays low for an extended period of time the middle east will really be in trouble, and that will drive prices higher. DNOW should be an easy double w/ oil back at $100. if management is as capable as i think they are and are able to really take advantage of the current climate, a triple or quadruple isn't out of the question, but who knows? remember, this isn't only about rolling up the industry, its also about rationalizing their cost structure after past M&A that left them with a duplicate footprint in some geographies. Link to comment Share on other sites More sharing options...
Fat Pitch Posted July 27, 2015 Share Posted July 27, 2015 What is DNOW's competitive advantage vs other distributors like WCC and MRC? WCC looks more attractive given decent FCF generation. Link to comment Share on other sites More sharing options...
spartansaver Posted July 31, 2015 Share Posted July 31, 2015 Figured I would post this, was looking for an oil services primer and came upon this for distributors. DISTRIBUTORS060612.pdf Link to comment Share on other sites More sharing options...
KCLarkin Posted July 31, 2015 Share Posted July 31, 2015 I am not sure how much DNOW competes with WCC. DNOW has a better balance sheet than MRC. The longer oil prices suffer, the better for DNOW versus MRC. Link to comment Share on other sites More sharing options...
Fat Pitch Posted July 31, 2015 Share Posted July 31, 2015 After some digging in it appears these distributors are nothing more than off balance sheet working capital “leasers” for their customers. DNOW management mentioned pricing concessions on their calls so this seems like a low quality business. Other companies (GWW, FAST, MSM) provide other services that tie themselves to the customer aside from renting out their balance sheet. While the potential for M&A is massive it looks like a double edged sword when looking at potential competitors. An industry that generates 1 trillion+ in annual revenue globally is going to catch Benzos attention and his company has the edge in shipping and logistics. There’s a high chance that the industry gross margins are going to be lower 10yrs from now. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted July 31, 2015 Share Posted July 31, 2015 After some digging in it appears these distributors are nothing more than off balance sheet working capital “leasers” for their customers. DNOW management mentioned pricing concessions on their calls so this seems like a low quality business. Other companies (GWW, FAST, MSM) provide other services that tie themselves to the customer aside from renting out their balance sheet. While the potential for M&A is massive it looks like a double edged sword when looking at potential competitors. An industry that generates 1 trillion+ in annual revenue globally is going to catch Benzos attention and his company has the edge in shipping and logistics. There’s a high chance that the industry gross margins are going to be lower 10yrs from now. bezos wouldn't want to win the business of renting out his balance sheet though. Link to comment Share on other sites More sharing options...
undervalued Posted July 31, 2015 Share Posted July 31, 2015 How much business are they doing online vs mortar store? Does DNOW has similar advantages of auto retail stores? Where customers usually wants their items right away (as in NOW)? Link to comment Share on other sites More sharing options...
Fat Pitch Posted July 31, 2015 Share Posted July 31, 2015 bezos wouldn't want to win the business of renting out his balance sheet though. Who says he needs to rent out his balance sheet? He'll just use his suppliers... Link to comment Share on other sites More sharing options...
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