Tidewater (TDW, Financial) is a leading provider of larger offshore service vessels to the global energy industry. Any name related to the energy industry has slumped in the last few months, and Tidewater is no exception. In the last one year, the stock has slumped by 50% and is currently trading at $29.82. In my view, the stock looks interesting at current levels and investors who are looking for value names in the energy industry can consider Tidewater for some exposure at current levels.
Before talking about the positives, I would like to caution investors against a big plunge in the energy sector at this point of time. Investors should only consider small exposure to attractive stocks as the oil price trend remains uncertain.
Talking about attractive stocks from a valuation perspective, Tidewater is currently trading at a trailing twelve month EV/EBITDA of 6.4, a price to sales of 0.98 and a price to book value of 0.54. Certainly there is value at these levels and the stock can move significantly higher once there is recovery in oil prices.
To this, I must add here that investors considering exposure to energy stocks should have a time horizon of 3-5 years for robust returns. I don’t expect stellar returns from the energy sector over the next 6-12 months. This makes my case of gradual accumulation even stronger instead of a big plunge in the sector.
Coming to the company specific positives, the global leader in AHTS and PSV vessels has strong fundamentals and this is the first reason to consider the stock. From a balance sheet perspective, the company has a debt to capitalization of just 35%, providing high financial flexibility.
Further, the company has no major debt maturity until 2019 and Tidewater also has an undrawn credit facility of $600 million as of September 2014. Therefore, the company has manageable leverage along with a robust liquidity position for capital investments that a schedules over the next 1-2 years.
In 2015, Tidewater has a capital expenditure of $269 million and Tidewater is therefore fully funded for 2015 with additional liquidity remaining from the credit facility even for 2016. The fundamentals are therefore very favorable in a difficult market. The fundamentals ensure that the company’s vessel growth trajectory is strong even in difficult markets.
Another big positive factor for Tidewater is the fleet age that gives the company an advantage over peers. As of September 2014, Tidewater had an average fleet age of just 6.7 years. This is a big positive considering the fact that 21% of the vessels in the industry are over 25 years old. I believe that most of these older vessels will be out of service in the coming 1-2 years and therefore the vessel supply-demand dynamics will also remain favourable for Tidewater.
With these factors in consideration, Tidewater certainly looks an attractive bet for the long-term. When the offshore market recovers, Tidewater will be among the best positioned offshore service vessels provider globally.
I must emphasize again that recovery in oil prices and offshore markets is not coming soon, but it is a good time to gradually accumulate stocks trading at very attractive valuations. The best time to buy is when sentiments are most bearish and I believe that sentiments are indeed very bearish at this point of time for the energy sector as a whole.
