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Graham Griffin
Graham Griffin
Articles (191) 

Michael Dell's MSD Capital Reduces Independence Contract Drilling Stake

Shares sold for the first time since 2019

December 07, 2020 | About:

Michael Dell (Trades, Portfolio)'s MSD Capital has revealed a reduction in its holding of Independence Contract Drilling Inc. (NYSE:ICD), according to GuruFocus' Real-Time Picks, a Premium feature.

MSD Capital is a New York-based private investment firm that was established to manage the assets of Dell Technologies' (NYSE:DELL) founder and CEO. The firm manages an extremely concentrated portfolio that contained three stocks at the end of the third quarter. They use a disciplined, research-intensive analytic process for investing. Businesses must possess sustainable, long-term competitive advantages and be managed by honest management teams.

On Dec. 4, the firm made the first change to the holding since it was purchased in 2019. They sold 11,666 shares for an overall reduction of 5.22%. On the day of the sale, the shares traded at an average price of $3.89 each. Overall, the sale had an impact of -0.09% on the portfolio and GuruFocus estimates the total loss of the holding at 94.11%.

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Independence Contract Drilling is engaged in providing land-based contract drilling services for oil and natural gas producers. The company constructs and operates its own premium land rig fleet. The company's customers for contract drilling services in the United States include oil and natural gas companies, independent oil and natural gas companies and various small to mid-sized publicly traded and privately held oil and gas companies.

On Dec. 7, the stock was trading at $4 per share with a market cap of $24.70 million. The GF Value Line shows that the company is a possible value trap, so investors should think twice before purchasing shares.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 1 out of 10. There are currently five severe warning signs issued, including new long-term debt and an extremely low Altman Z-Score of -0.84 placing the company in the distress column. Currently, the weighted average cost of capital far exceeds the return on invested capital, so value will be destroyed if the company grows.

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The firm is the company's second-largest shareholder with 3.43% of shares outstanding. The top shareholder is MSDC Management, L.P. (Trades, Portfolio) with 15.24% of shares outstanding. Other top shareholders include Vanguard Group Inc. (Trades, Portfolio), FMR LLC (Trades, Portfolio), Northwestern Mutual Investment Management Company, LLC (Trades, Portfolio) and Virtu Financial LLC (Trades, Portfolio).

Portfolio overview

At the end of the third quarter, the portfolio contained three stocks with no new holdings. It was valued at $49 million and has seen a turnover rate of zero percent. The three holdings are Dine Brands Global Inc. (NYSE:DIN), Townsquare Media Inc. (NYSE:TSQ) and Independence Contract Drilling.

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By weight, the three sectors represented are consumer cyclical (83.19%), communication services (15.69%) and energy (1.12%).

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Disclosure: Author owns no stocks mentioned.

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