Opinions
Benj Gallander
Trinidad Drilling Ltd
TDG-T
COMMENT
May 07, 2015
Stock price when the opinion was issued
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(A Top Pick November 9/17 Up 5%) The stock is benefiting from the Ensign bid at $1.68, but thinks it will need a $2.00 price per share to make sense. He would like to see the company remain independent. They have a strong management team. The company is moving more rigs into the US under term contract agreements. He has a $3.00 per share 12 month target price.
He would rather see this company stay independent--its metrics are better than either Precision or Ensign (the two companies bidding for Trinidad). However, he sees the combination of Trinidad with Precision is a good deal. He thinks Ensign might come back with a higher bid, creating a bidding rivalry. His price target is $7. If the company is bought by Precision, he would roll over, to become a shareholder of Precision. Note: Precision’s debt to equity is high, almost 1 to 1. Ensign offers a dividend but also has a much higher debt than Trinidad. Yield 0%. (Analysts’ price target is $2.34)
There is a whole host of companies in drilling. The difficulty right now is that so many of these companies have crappy balance sheets, because they levered up when times were good. This can be a good sector to invest in, but you have to watch because a lot of the companies have revenues that are going way down, while the debt level is staying the same or going up.