Further whittling down its position in Independence Contract Drilling Inc. (ICD, Financial), Michael Dell (Trades, Portfolio)'s MSD Capital revealed another reduction of 5.75% earlier this week.
Established in 1995 to manage the assets of Dell Technologies Inc.'s (DELL, Financial) founder and CEO, the New York-based private investment firm manages an extremely concentrated portfolio of companies that have sustainable, long-term competitive advantages that are run by honest management teams. The firm follows a disciplined, research-intensive analytic investment process.
According to Real-Time Picks, a Premium feature of GuruFocus, MSD sold 9,867 shares of the Houston-based oil and gas company on March 1, impacting the equity portfolio by -0.11%. The stock traded for an average price of $6.23 per share on the day of the transaction.
MSD Capital now holds 161,676 shares total, which account for 0.93% of its equity portfolio. The firm has been trimming the holding over the past several months after establishing it in the first quarter of 2019. GuruFocus estimates it has lost 92.45% on the investment so far.
The provider of onshore drilling services has a $36.04 million market cap; its shares were trading around $5.91 on Wednesday with a price-book ratio of 0.14 and a price-sales ratio of 0.3.
Despite the volatility present in the energy sector and severe drop in share price over the past couple of years, the GF Value Line suggests the stock is currently modestly undervalued.
On Feb. 24, Independence Contract Drilling reported its fourth-quarter and full-year 2020 financial results. For the quarter, it posted an adjusted earnings loss of $2.65 per share on $13.3 million in revenue. The net loss for the full year was $19.69 per share, while sales were $83.4 million.
The company also announced that, as of Dec. 31, eight rigs were in operation. Four more rigs are expected to be reactivated by the end of March.
In a statement, CEO Anthony Gallegos noted the final quarter of the year "marked an inflection point" as its contracted rig count increased as demand began to recover from "the effects of the Covid-19 pandemic."
"Looking out across our primary markets, including the Permian, Haynesville and Eagle Ford, we continue to see opportunities to increase our contracted rig count as the underlying macro environment continues to improve," he said.
GuruFocus rated Independence Contract Drilling's financial strength 3 out of 10. As a result of issuing approximately $24.9 million in new long-term debt over the past three years, the company has poor interest coverage. In addition, the Altman Z-Score of -1.22 warns the company is in distress and could potentially be in danger of bankruptcy if it does not improve its liquidity position.
The company's profitability did not fare well either, scoring a 2 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors. Independence Contract Drilling also has a low Piotroski F-Score of 3, which indicates operating conditions are in poor shape. It has also recorded a loss in operating income and declining revenue per share over the past several years.
Dell holds 2.62% of Independence Contract Drilling's outstanding shares. Jim Simons (Trades, Portfolio)' Renaissance Technologies also owns the stock.
Portfolio composition
MSD Capital's $54 million equity portfolio was composed of three stocks as of the end of the fourth quarter. The firm's other two holdings are Dine Brands Global Inc. (DIN, Financial) and Townsquare Media Inc. (TSQ, Financial).
By weight, the three sectors represented are consumer cyclical (79.02%), communication services (20.05%) and energy (0.93%).
Disclosure: No positions.
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