Michael Dell (Trades, Portfolio)’s MSD Capital disclosed Monday that it established a stake in Independence Contract Drilling Inc. (ICD, Financial).
The New York-based private investment firm, which was established in 1995 to manage the assets of Dell Technologies’ (DVMT, Financial) founder and CEO, manages an extremely concentrated portfolio, which, before the most recent trade, was composed of three holdings.
According to GuruFocus real-time picks, the firm invested in 4.5 million shares of the Houston-based drilling company for an average price of $4.71 per share, allocating 23.69% of the equity portfolio to the stake. So far, it has gained an estimated 2.34% on the investment.
The company, which provides land-based drilling services for oil and natural gas producers, has a $368.28 million market cap; its shares were trading around $4.89 on Thursday with a forward price-earnings ratio of 13.26, a price-book ratio of 0.82 and a price-sales ratio of 1.86.
The median price-sales chart shows the stock is trading slightly above its historical value.
Shares of the drilling company rose after announcing on Oct. 1 that shareholders approved the issuance of common stock in relation to its merger agreement with Sidewinder Drilling LLC, which was inked in July. The deal closed later that day.
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According to GuruFocus, the stock has climbed 24% year to date.
With 11.69% of outstanding shares, Dell’s firm has the largest position in Independence Contract Drilling. Chuck Royce (Trades, Portfolio), Prem Watsa (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies are also shareholders.
Earnings and valuation
In August, the company reported a second-quarter earnings loss of 9 cents per share on a record $25.8 million in revenue.
GuruFocus rated Independence Contract Drilling’s financial strength 4 out of 10. While the company has good debt-to-equity and equity-to-asset ratios, its Altman Z-Score of 1.13 suggests the company is at risk of going bankrupt. Additionally, its long-term debt and capital lease obligations grew from $26.08 million at the end of 2016 to $49.28 million at the end of 2017. In 2015, the company recorded $62.71 million in debt.
As a result of weak margins and returns, the company’s profitability and growth scored a 5 out of 10 rating. While the Piotroski F-Score of 4 suggests business conditions are stable, the company has seen a decline in revenue per share over the last several years. In addition, GuruFocus warns its assets are building at a faster rate than its revenue, which indicates the company may be becoming less efficient.
Portfolio
As of the second quarter, MSD Capital’s $67.83 million equity portfolio was composed of Dine Brands Global Inc. (DIN, Financial), Townsquare Media Inc. (TSQ, Financial) and PVH Corp. (PVH, Financial).
Disclosure: No positions.
