Last week I published my analysis of SED Energy.
Then one thing kept bothering me. I never counted what this company pays after its merger.
SED wants to merge with Ventura, a driller from Brazil. And management shows what would be left for the shareholders of the combined company. Free cash flow of 1.4 to 2.6 kroner per share. The share costs 6.42.
At 6.42 kroner that is a yield of 22% to 40%.
Forty percent. If all of it were paid out, you would have your money back in two and a half years and still own the share.
The risks from last week are still there. SED drills with tender barges, floating rigs that moor next to an oil platform. In September it lost two contract renewals to jackups, cheaper rigs that stand on legs on the seabed. Half of its barge fleet could spend months without work.
So I spent some time on Ventura. I read its annual report, its new loan, the merger presentation, two years of earnings calls and the history of its only real customer, Petrobras, Brazil’s state oil company. I also “went back” to Thailand to understand why a jackup beat a tender barge.
Some of what I found is gold. Some of it is hot air, and the hot air is exactly what the bullish write-ups are built on. Then I did what management did not. I put the idle rigs, the loan and the debt repayments back into their numbers and counted the dividend again.
The number that came out is not the one in the presentation. And after it, I can’t say what I said last week.
