DNOW - DistributionNow

[Guest Schwab711]

http://www.mdm.com/ext/resources/Webcasts/2016-Webcasts/MDM-Webcast-2016-Industry-Outlook-handouts.pdf

 

I thought the pricing data was cool to see. This is probably applicable for a lot of different companies so I didn't know where to put it.

[cma_atk]

Guys,

Anyone still following this one? Haven't done much work, but it seems like this might be a bit oversold.

 

 

[ABM]

http://openinsider.com/DNOW

 

Director increased his stake in company 33% through open market $100,000 purchase today.

[Homestead31]

i think this has gotten very interesting again...  in the short term, this stock trades on oil prices...  but in the long term, what really matters is volume, not price.  DNOW doesn't care if their customer is selling their oil for $100 per barrel or $40 per barrel as long as they are selling that barrel.

 

Of course, there is a link between price and volume as volume depends on price per barrel minus cost per barrel, but I think the market is missing the fact that drilling has become much much more efficient over the last few years, with some estimates saying that cost per barrel has come down by more than 50% since 2014. 

 

This lower cost of production is starting to work its way into the market as we have seen over the last few weeks with the rig count continuing to go up even in the face of lower oil prices, and the EIA recently bumped their 2018 volume estimate to 9.7M barrels per day, up from 8.9M in November.  9.7M would be an all time high (breaking the record set in 1970).

 

Of particular note for DNOW is that efficiency improvements have reached the point where deep water projects can be profitable again - according to Shell, their newer deep water projects can be profitable with oil below $40.

 

I think this is a glaring example of the market missing the forest for the trees by just lumping DNOW with oil prices when volume is what really matters, and the volume trend is positive.

[Guest roark33]

I will let someone smarter than me speak on this subject: 

 

Wayne Gretzky once said, “skate to where the puck is going, not to where it’s been.” My initial thesis behind DNOW—a unique competitive position to take advantage of distressed competitors, growing bargaining power translating into better economics, and technological advances that benefit DNOW’s customers and support drilling activity—may have seen me skate past the puck. While it’s probably too early to evaluate confidently, DNOW’s results and underlying economics have been disappointing. Tighter working capital management and pricing leverage have not materialized to generate the returns on capital we expected. Higher oil prices and a growing rig count are positive developments, yet if DNOW’s growing suite of products and services don’t translate into greater bargaining power, the business economics will likely fall short of our expectations. Given a rising stock price and our waning confidence, we chose to sell a large part of our position.

[AzCactus]

Is this from Arlington's 2016 letter ?  If so would you mind attaching a copy ?

[winjitsu]

Is this from Arlington's 2016 letter ?  If so would you mind attaching a copy ?

 

http://www.valuewalk.com/2017/03/allan-mecham-2016-letter/?all=1

[AzCactus]

Thank You

[AzCactus]

To me this company is starting to look interesting again. Year over year numbers are up significantly in most regards.  They had a very small loss and appear to have a management team that is keeping expenses relatively low.  The only negative I saw was the debt go up year over year.  Anyone see anything else of significance?

[Foreign Tuffett]

To me this company is starting to look interesting again. Year over year numbers are up significantly in most regards.  They had a very small loss and appear to have a management team that is keeping expenses relatively low.  The only negative I saw was the debt go up year over year.  Anyone see anything else of significance?

 

Here are some very, very general thoughts. Please note that I don't follow DNOW closely, but in a past life I worked in the oilfield services industry and have a tiny sliver of experience dealing with them.

 

The original thesis was that DNOW, as comparatively large industrial distributor in the fragmented oilfield distribution space, could grow its market share by rolling up mom and pops. Pete Miller leaving NOV to become DNOW's Executive Chairman was also seen as a big plus. Combine all that with a net cash position and a capital light business model and what's not to love? 

 

Obviously the thesis hasn't worked particularly well. DNOW, being very leveraged to the US onshore upstream E&P space, particularly well completion activity, was at or near peak earnings at the time of the spinoff (note that the price of WTI oil at the time of the spinoff was ~$100). They spent the first couple of years post-spinoff consistently shrinking and consistently generating negative EBITDA. One easy way to get an idea of the extent to which DNOW has shrunk is to compare their balance sheet as of yesterday's 10-Q to their balance sheet as of their first post-spinoff 10-Q. Look specifically at current assets vs total liabilities.

 

Moving forward I think the main driver for the company is what I mentioned above: US onshore E&P activity, particularly well completions. This is why the company is always talking about tank batteries, well completion backlogs, and rig counts. It's hard to have an opinion on these things without having an opinion on future WTI prices and shale basin E&P activity, two things that IMO are very difficult to forecast, even directionally. 

 

 

 

 

 

 

 

 

[WneverLOSE]

Another thing is that I think people expected (and still expect) that when a recovery comes they could lever up and produce nice returns on equity but it doesn't look that it will ever happen, I agree with Robert Workman that the cycles will be more frequent and more extreme so taking leverage will be much more risky than once thought.

 

[MrB]

To me this company is starting to look interesting again. Year over year numbers are up significantly in most regards.  They had a very small loss and appear to have a management team that is keeping expenses relatively low.  The only negative I saw was the debt go up year over year.  Anyone see anything else of significance?

 

Here are some very, very general thoughts. Please note that I don't follow DNOW closely, but in a past life I worked in the oilfield services industry and have a tiny sliver of experience dealing with them.

 

The original thesis was that DNOW, as comparatively large industrial distributor in the fragmented oilfield distribution space, could grow its market share by rolling up mom and pops. Pete Miller leaving NOV to become DNOW's Executive Chairman was also seen as a big plus. Combine all that with a net cash position and a capital light business model and what's not to love? 

 

Obviously the thesis hasn't worked particularly well. DNOW, being very leveraged to the US onshore upstream E&P space, particularly well completion activity, was at or near peak earnings at the time of the spinoff (note that the price of WTI oil at the time of the spinoff was ~$100). They spent the first couple of years post-spinoff consistently shrinking and consistently generating negative EBITDA. One easy way to get an idea of the extent to which DNOW has shrunk is to compare their balance sheet as of yesterday's 10-Q to their balance sheet as of their first post-spinoff 10-Q. Look specifically at current assets vs total liabilities.

 

Moving forward I think the main driver for the company is what I mentioned above: US onshore E&P activity, particularly well completions. This is why the company is always talking about tank batteries, well completion backlogs, and rig counts. It's hard to have an opinion on these things without having an opinion on future WTI prices and shale basin E&P activity, two things that IMO are very difficult to forecast, even directionally.

 

That's reasonable, but I think it is fair to say that Workman faced the most severe downturn in living memory.

[Foreign Tuffett]

 

That's reasonable, but I think it is fair to say that Workman faced the most severe downturn in living memory.

 

Yes, very true.

[MrB]

About time we have something to smile about.

Q1 - Revenue was $764 million for the first quarter of 2018, up 21 percent year over year and up 14 percent sequentially.

 

http://ir.distributionnow.com/news-releases/news-release-details/now-inc-reports-first-quarter-2018-results

[MrB]

Closing the gap with MRC; DNOW sales up 18% v MRC 12% - Looks like project solutions and the tank business is actually working out...finally

 

http://ir.distributionnow.com/news-releases/news-release-details/now-inc-reports-third-quarter-2018-results

http://ir.distributionnow.com/static-files/4e1d3eb8-e2d0-4b62-9834-9376e52787d5

[kab60]

How this has fallen... Spun off as a compounder story, now trades as a net net... New CEO onboard who seems to be a pretty lean mofo and think there's still cost to take out... They were almost breakeven in Q2 (if one ignores some inventory charges - yeah, don't ignore those...), Q3 should be tough as well, but still pretty wild how hated energy is right now. It's very difficult to get a grasp on normalized earnings power, but I generally like distribution businesses if only this one wasn't so wildly unpredictable and cyclical and had too low gross margins... Probably best to stay away.

[Jurgis]

If only I had fat-fingered and bought NOW instead of DNOW when DNOW was spun off ... and then forgot about it...  ::) 8)

[kab60]

If only I had fat-fingered and bought NOW instead of DNOW when DNOW was spun off ... and then forgot about it...  ::) 8)

They should hire a slimy PR Company and do a fake Coke or fake Zoom and get the Robinhooders fired up... Otherwise I suppose the best returns will be made when the thing is bankrupt and they come swarming by themselves...

[Foreign Tuffett]

If only I had fat-fingered and bought NOW instead of DNOW when DNOW was spun off ... and then forgot about it...  ::) 8)

They should hire a slimy PR Company and do a fake Coke or fake Zoom and get the Robinhooders fired up... Otherwise I suppose the best returns will be made when the thing is bankrupt and they come swarming by themselves...

 

Why/how would they go bankrupt when they have zero debt and (@ 6/30) $270 million of cash.

 

Yes, obviously it's "very difficult to get a grasp on normalized earnings power" here. Ultimately it depends on a multitude of macro factors such as (a) future oil prices (b) future competitiveness of US onshore vs ex-US and Canada (most of their locations are in US). No one in the world knows the answers to these questions. I made a similar point in the XOM thread.

 

 

[kab60]

If only I had fat-fingered and bought NOW instead of DNOW when DNOW was spun off ... and then forgot about it...  ::) 8)

They should hire a slimy PR Company and do a fake Coke or fake Zoom and get the Robinhooders fired up... Otherwise I suppose the best returns will be made when the thing is bankrupt and they come swarming by themselves...

 

Why/how would they go bankrupt when they have zero debt and (@ 6/30) $270 million of cash.

 

Yes, obviously it's "very difficult to get a grasp on normalized earnings power" here. Ultimately it depends on a multitude of macro factors such as (a) future oil prices (b) future competitiveness of US onshore vs ex-US and Canada (most of their locations are in US). No one in the world knows the answers to these questions. I made a similar point in the XOM thread.

I wasn't trying to suggest they were at risk of BK, only that BK companies have done really well in this environment. :)  Normalized earnings are tricky, but they do expect to get SG&A down to 80-90m a quarter and then depending on GM one can sort of establish an estimate of breakeven levels.

[Snorky]

Michael Burry (Scion Asset Management) bought 1.5 mio share for ~ 1,3% of the company and ~ 7,7 % of his portfolio (second biggest position).