Disclaimer
This content is for informational purposes only and does not constitute financial advice; we recommend always verifying the ideas presented here and conducting your own research, as there may be errors in interpretation and translation.
Today we have compiled the following theses:
Offshore Services (Focused Mainly on Drillers) by Praetorian Capital Management
Thesis on Valaris - $VAL - January 12, 2025 by Praetorian Capital Management
Thesis on Valaris - $VAL - Jan 02, 2025 by Night Watch Investment Management
Thesis in Marex - $MRX - Jan 02, 2025 by Night Watch Investment Management
Thesis on Allfunds - $ALLFG NA - Jan 02, 2025 by Night Watch Investment Management
Investment Themes by Night Watch Investment Management
Thesis on Kelly Services - $KELYA - Jan 05, 2025 by Palm Valley Capital Management
Thesis on Seaboard Corporation - $SEB - Jan 05, 2025 by Palm Valley Capital Management
Thesis on ManpowerGroup - $MAN - Jan 05, 2025 by Palm Valley Capital Management
Thesis on Carter's - $CRI - Jan 05, 2025 by Palm Valley Capital Management
Thesis on TrueBlue - $TBI - Jan 05, 2025 by Palm Valley Capital Management
Thesis on Builders FirstSource - $BLDR - Jan 09, 2025 by Black Bear Value Partners
Thesis on Paramount Resources - $POU.TO - Jan 09, 2025 by Black Bear Value Partners
Thesis on CONSOL Energy - $CEIX - and Arch Resources - $ARCH - Jan 09, 2025 by Black Bear Value Partners
Thesis on Warrior Met Coal - $HCC - Jan 09, 2025 by Black Bear Value Partners
Thesis on Asbury Group - $ABG - Jan 09, 2025 by Black Bear Value Partners
Thesis on Flagstar Financial - $FLG - Jan 09, 2025 by Black Bear Value Partners
Offshore Services (Focused Mainly on Drillers)
1. Decline in Offshore Oil Production (2010–2024):
Offshore production decreases from 31% to 27% of total global production.
Causes of Reduced Investment:
Deepwater Horizon accident and rise of ESG.
Promises of shale: greater flexibility and perceived returns.
Peak oil predictions limited long-term projects.
Consequences:
Bankruptcies, consolidations, and fleet scrapping.
Floater fleet reduced from 281 to 150 units.
2. Offshore Recovery in the Next Decade:
Shale Decline:
Mature fields in the U.S., stagnating production.
Lower profitability with breakevens at $60–$70.
Offshore Advantages:
Breakevens <$50 and higher current profitability.
Innovations like FPSO, 4D seismic, and advanced drillships (7G/8G) with two Blowout Preventers (BOPs) and employing Managed Pressure Drilling (MPD) have driven cost and productivity optimization.
Increased Demand for Drillships and Limited Fleet:
Supply and demand for high-specification equipment are the main industry drivers.
Offshore projects gain interest with sustained demand.
Reduction of obsolete equipment limits drillship supply.
At $50 oil prices, shale would adjust, but offshore remains competitive.
3. Fleet Quality and New Constructions:
Quality Matters:
Deepwater projects (where discoveries are occurring) require advanced equipment.
Growing gap between 7G/8G and earlier generations.
No Newbuildings Expected at Current Rates:
Building a drillship requires $1,000M, needing day rates of $1M and 10-year contracts to justify newbuildings and achieve a mid-teens return on investment. This level has not yet been reached.
Construction takes a minimum of three years.
4. High-Specification Offshore Fleet:
60 drillships 7G/8G, of which 57 are 7G and 3 are 8G (53 active, 48 belong to VAL, NE, SDRL, RIG).
Obsolescence:
6G in decline due to modernization costs and low demand.
7G/8G dominate in technology and capacity. These will be demanded and updated before older generations, as long as no newbuildings enter the market.
5. Conclusion:
Capex is returning to offshore.
High demand for drillships in a market with limited supply and no economic viability for new constructions.
SOURCES:
Praetorian Capital Management
https://www.pracap.com/
January 12, 2025
Q4 2024
Thesis on Valaris - $VAL - January 12, 2025
Assets: 12 Drillships (7G), 1 Drillship (6G), 5 semi-subs, 33 modern Jackups, and a 50% stake in the JV with Saudi Aramco ARO (9 modern Jackups).
Newbuilding costs $1B per high-spec drillship unit and $250M per Jackup.
Potential FCF Scenarios: $560M–$1.65B (according to the company). This would require updating contracts to current dayrates (which are double) and contracting idle high-spec vessels (7G). This makes sense by the end of 2026, with the possibility of exceeding the rates in the C scenario.
Cash flow is being used for share buybacks, and as more CF is generated, buybacks at these prices are highly accretive.
Downside protection: Backlog of $4.1B at good margins and $265.4M owed by the JV cover more than half of the EV and all net debt.
Competitiveness: Better positioning compared to competitors in adverse market conditions.
The recent drop in the stock is due to temporary causes: offshore projects have been delayed by bottlenecks in key infrastructure (FPSOs and subsea equipment) just as vessels were being reactivated, along with some effect from oil prices dropping from $80 to $70. Once this passes, rates should rise again, and fleet utilization should increase.
Valuation:
EV vs different valuations
EV = $3.9B (Market cap $3.15B and Net debt $800M).
Replacement cost of assets is $25B vs current EV of $3.9B.
Upside according to dayrates:
With rates from the last cycle, FCF > $2B ($700k/day drillship and $250k/day Jackup).
Annual FCF > $3B with rates justifying newbuilds ($1M/day drillships, $350k/day Jackups).
Projected NAV in a few years: $45B (1.5x NAV) with fewer shares due to buybacks.
SOURCES:
Praetorian Capital Management
January 12, 2025
Q4 2024
Thesis on Valaris - $VAL - Jan 02, 2025
Valaris operates one of the most modern offshore drilling rig fleets.
It emerged from bankruptcy in 2021.
Day rates per rig increased from $200K/day (2021) to $500K/day.
Opex per rig is approximately $200K/day.
The stock fell in H2 2024 (due to temporary reasons) because its clients had to delay projects from 2025 to 2026, due to a shortage of subsea equipment and FPSOs.
Demand for rigs remains intact despite the delays, and rig supply is limited.
Valuation
Each rig is generating $100M, and we have acquired them for less than $150M per rig.
SOURCES
Night Watch Investment Management
https://www.nightwatchim.com
https://seekingalpha.com/article/4748663-night-watch-investment-management-q4-2024-update
Jan 02, 2025
Q4 2024
Thesis in Marex - $MRX - Jan 02, 2025
Largest non-banking broker in futures, focused on commodities.
Counter-cyclical idea.
Organic growth >15% CAGR since 2020.
Benefits during periods of high volatility due to increased trading.
Additional boost through strategic acquisitions (M&A).
Valuation
ROE >25%.
Trades at ~10x P/E 2025.
SOURCES
Night Watch Investment Management
https://www.nightwatchim.com
https://seekingalpha.com/article/4748663-night-watch-investment-management-q4-2024-update
Jan 02, 2025
Q4 2024
Thesis on Allfunds - $ALLFG NA - Jan 02, 2025
Leading fund distribution platform in Europe.
Historical annual revenue growth of 21%.
In 2022 and 2023, growth slowed down, leading to a derating of the P/E multiple from >40x in 2021 to <12x in 2025.
Growth accelerated again in Q2 2024.
It has received acquisition interest with offers 50-70% higher than the current price.
Valuation
Trades at a P/E multiple <12x 2025.
SOURCES
Night Watch Investment Management
https://www.nightwatchim.com
https://seekingalpha.com/article/4748663-night-watch-investment-management-q4-2024-update
Jan 02, 2025
Q4 2024
Investment Themes:
Energy: Focus on the transition of oil and gas production towards offshore regions like Brazil and West Africa, taking advantage of a supply/demand mismatch and high margins in offshore equipment. E.g., Valaris.
Countercyclicals: Incorporate assets that thrive in times of economic uncertainty to reduce overall risk. E.g., Marex.
Aerospace: Exploit the strong demand for commercial aircraft, pivoting from the supply chain towards aircraft owners due to production issues. E.g., $AL, $AER, $UAL.
Consumer: Buy cheap businesses due to the consumer crisis of the last two years, focusing on companies with growth drivers. E.g., Remitly.
Housing in the U.S.: Selective focus on senior housing facilities due to favorable supply and demand dynamics. E.g., Senior Living Facilities.
Europe: Buy high-quality European companies at discounted prices due to widespread economic pessimism. E.g., Allfunds.
Emerging Markets: Capitalize on low valuations and high dividends in markets like China and Brazil, supported by shareholder-friendly reforms. E.g., Ping An and Dream International.
Fiscal Stimulus and Relocation: Benefit from the relocation of industrial activities to the U.S., driven by tariffs and low energy prices. E.g., Distribution Solutions Group.
SOURCES
Night Watch Investment Management
https://seekingalpha.com/article/4748663-night-watch-investment-management-q4-2024-update
Jan 02, 2025
Q4 2024
Thesis on Kelly Services - $KELYA - Jan 05, 2025
It is dedicated to offering hiring solutions and temporary staffing, with a focus on sectors such as education, science, and technology.
Improved profitability in a challenging environment, demonstrating efficient management.
Recent debt considered manageable after acquisition, with financial clarity.
Previous success of Palm Valley investing in Kelly, reinforcing their confidence in the business model.
Valuation:
Attractive P/E: Trades at 6x its adjusted operating profit.
Tangible discount: Shares with a 27% discount on their tangible value.
SOURCES:
Palm Valley Capital Management
https://www.palmvalleycapital.com/
https://www.palmvalleycapital.com/fundletter
Jan 05, 2025
Q4 2024
Thesis on Seaboard Corporation - $SEB - Jan 05, 2025
Diversified company operating in pork production, food processing, grain trading, maritime transportation, renewable energy, and power generation on a global scale.
Strategic advantage by operating in less competitive markets (Africa, South America, Caribbean).
Strong management with a track record of growth in net value per share.
Expected recovery in hog-raising margins as a key catalyst.
Consistent focus on value creation despite generational changes in management.
Valuation:
Trades at 50% of its tangible book value.
SOURCES:
Palm Valley Capital Management
https://www.palmvalleycapital.com/
https://www.palmvalleycapital.com/fundletter
Jan 05, 2025
Q4 2024
Thesis on ManpowerGroup - $MAN - Jan 05, 2025
ManpowerGroup is dedicated to offering recruitment services and talent management solutions, specializing in temporary, permanent, and labor consulting services.
Sustained profitability despite a weak labor market; revenues fall only 3%, and operating earnings remain stable.
Global presence mitigates risks, though it faces challenges in economies like France.
Solid foundation to capture opportunities if the labor market improves.
Valuation
Low Valuation Multiple: Trades at 6 times normalized operating earnings.
High Dividend Yield: Over 5%.
Revaluation Margin: Significant undervaluation with potential for recovery if the macroeconomic environment improves.
SOURCES:
Palm Valley Capital Management
https://www.palmvalleycapital.com/
https://www.palmvalleycapital.com/fundletter
Jan 05, 2025
Q4 2024
Thesis on Carter's - $CRI - Jan 05, 2025
Carter's is dedicated to the design, manufacturing, and marketing of clothing and accessories for children and babies.
Inflation has reduced the discretionary income of young parents.
To counteract this situation, Carter's has lowered prices in its stores, which has increased sales volumes but reduced profit margins.
Valuation
It trades at a P/E of 11x estimated for 2024.
Attractive dividend yield of 5.9%.
SOURCES:
Palm Valley Capital Management
https://www.palmvalleycapital.com/
https://www.palmvalleycapital.com/fundletter
Jan 05, 2025
Q4 2024
Thesis on TrueBlue - $TBI - Jan 05, 2025
TrueBlue is dedicated to providing temporary labor for industrial and commercial jobs, specializing in short-term and highly flexible employment. The company specializes in blue-collar day labor.
Temporary labor in industrial and commercial sectors, with high flexibility and short-term jobs.
Ability for quick recovery when economic conditions improve.
Increase in the customer base despite the drop in volumes.
Debt-free and operating close to cash flow breakeven at the low point of the cycle.
Possibly, illegal immigration affected their sector.
Valuation
Attractive multiple: Trades at 4x normalized operating earnings.
SOURCES:
Palm Valley Capital Management
https://www.palmvalleycapital.com/
https://www.palmvalleycapital.com/fundletter
Jan 05, 2025
Q4 2024
Thesis on Builders FirstSource - $BLDR - Jan 09, 2025
It is a manufacturer and supplier of building materials focused on residential construction, with a growing emphasis on value-added products and services.
Market Opportunity: Structural housing shortage in the U.S. benefits builders and suppliers like BLDR. High mortgage rates increase the demand for new homes.
Business Transformation: Focus on value-added products and services (40%+ of revenue), increasing margins and resilience.
Solid Management: Share buybacks (>40% in 33 months) and effective capitalization and leverage strategy.
Market Opportunity: Recent price declines reflect sentimental fears, not operational issues.
Valuation
Normalized FCF estimate: $12-$17 per share annually, yield of 8%-12%.
Estimation without assuming growth.
SOURCES
Black Bear Value Partners
https://www.blackbearfund.com/
https://seekingalpha.com/article/4748652-black-bear-value-partners-q4-2024-letter
Jan 09, 2025
Q4 2024
Thesis on Paramount Resources - $POU.TO - Jan 09, 2025
Paramount Resources (POU.TO) is an energy exploration and production company focused on oil and natural gas.
It is trading at $32 as of the year-end close.
The company has sold most of its mature assets and will distribute $15 CAD in Q1 2025.
They will retain cash to finance exploration and development.
The company is pending upcoming disclosures, where they will provide more information.
Management owns 50% of the company and has been excellent operators.
Valuation
To assess what we are paying once we receive the dividend, accounting for taxes and development capex.
Black Bear estimate the sum of dividends adjusted for taxes, cash, and assets minus estimated development costs for 2 years at $18 CAD/share.
This implies paying $32-$18 = $14 for the future generation of FCFF.
They estimate that in a favorable oil scenario, the company will generate an FCFF of $2-$3.
This represents an FCF yield of 14%-21%.
SOURCES
Black Bear Value Partners
https://www.blackbearfund.com/
https://seekingalpha.com/article/4748652-black-bear-value-partners-q4-2024-letter
Jan 09, 2025
Q4 2024
Thesis on CONSOL Energy - $CEIX - and Arch Resources - $ARCH - Jan 09, 2025
CONSOL (CEIX) and Arch Resources (ARCH) are engaged in the production of metallurgical and thermal coal, essential for the steel industry and power generation.
Growing demand: Driven by urbanization and economic development in Asia, especially in India and Southeast Asia, where high-quality metallurgical coal is scarce.
Limited supply: Lack of investment in the sector since 2014 due to ESG concerns, supporting high prices.
Once the merger is completed in Q1, they will be able to repurchase shares.
Valuation:
Combined market capitalization: $5.7B.
Estimates for the next two years:
Free cash flow (FCF): $500M-$1,000M annually.
Accumulated cash: $300M-$1.5B over two years (net of liabilities).
Marine terminal generating $50-$70MM in FCF, valued at $500MM-$900MM.
Synergies of $60-$100MM at a 15% yield = $400-$700MM in value.
Combined valuation: $4.9B-$10.8B (applying a 15% FCF yield), with a potential revaluation of up to 90%.
SOURCES
Black Bear Value Partners
https://www.blackbearfund.com/
https://seekingalpha.com/article/4748652-black-bear-value-partners-q4-2024-letter
Jan 09, 2025
Q4 2024
Thesis on Warrior Met Coal - $HCC - Jan 09, 2025
It is a leading producer of high-quality metallurgical coal, essential for steelmaking.
Strong demand and limited supply: Sustained growth in Asia and India, with global supply constraints due to low ESG investment.
Completion of investments: Projects conclude this year, freeing up significant cash flow.
Competitive advantage: Efficient and low-cost operations, strategically positioned in the global metallurgical coal market.
Valuation:
Current price: $54 per share.
Valuation range in 2 years: $67-$118 per share, potential revaluation of 24%-118%. Valuing at an FCF yield of 15%.
Accumulated FCF: $14-$23 per share (next 2 years).
Existing operations: $40-$67 per share (FCF yield of 15%).
Blue Creek: $7-$18 additional per share.
SOURCES
Black Bear Value Partners
https://www.blackbearfund.com/
https://seekingalpha.com/article/4748652-black-bear-value-partners-q4-2024-letter
Jan 09, 2025
Q4 2024
Thesis on Asbury Group - $ABG - Jan 09, 2025
Operates car dealerships in the United States, generating more than 50% of its profits through parts and post-sale services.
Resilient business model: More than 50% of profits come from parts and service, ensuring stable income.
Digital transformation: Adoption of the omnichannel model, reducing costs and improving operational efficiency.
Market consolidation: Ability to acquire and modernize small dealerships in a fragmented industry.
Aligned management: Use of free cash flow for share buybacks, increasing shareholder value.
Valuation
Free Cash Flow (FCF): Generates between $25-$35 per share in a "normal" year.
FCF Yield: Implies a 10%-14% yield at end-of-year prices.
SOURCES
Black Bear Value Partners
https://www.blackbearfund.com/
https://seekingalpha.com/article/4748652-black-bear-value-partners-q4-2024-letter
Jan 09, 2025
Q4 2024
Thesis on Flagstar Financial - $FLG - Jan 09, 2025
It is a regional bank focused on traditional financial services, currently centered on restructuring and optimizing its balance sheet and loan portfolio.
Significant transformation following the acquisition of Signature Bank assets.
Recapitalization with $1 billion led by Steven Mnuchin.
New conservative management team, led by Joseph Otting.
Balance sheet cleanup through the sale of non-strategic assets and solid credit reserves.
Operational normalization expected by 2026 after resolving inherited issues by 2025.
Valuation:
FLG trades at 51% of its tangible book value (TBV), compared to 140-160% for similar banks.
Potential revaluation of 50-150% in 1-3 years, doubling the price by reaching 100% of its TBV.
SOURCES
Black Bear Value Partners
https://www.blackbearfund.com/
https://seekingalpha.com/article/4748652-black-bear-value-partners-q4-2024-letter
Jan 09, 2025
Q4 2024