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Now this is cheap, HAWK's assets are trading for less than their scrap value



June 30, 2010 – Comments (11) | RELATED TICKERS: HAWKQ.DL

Back on June 4th I went long Seahawk Drilling (HAWK) in CAPS and wrote the following describing why: 

If a cool company name and a cool logo were the secret to success, Swahawk Drilling (HAWK) would be Google. Unfortunately they're not and it definitely is not. I have always a big fan of spin-offs, so when Price spun off its shallow water jackup assets into a new company last year it caught my eye. I never pulled the trigger on it in CAPS or in real life, thank goodness, well...mainly because the company was involved in well drilling in shallow water using jackup rigs. The pricing for said activity was terrible. It still is, but it appears to be getting better. 

The sector that this company operates in certainly is not the reason that I'm interested in it. I like it because it has been completely left for dead by Mr. Market. At yesterday's closing price, HAWK was trading at 32% of its stated book value. Thirty-two percent. Even assuming that its book value is somewhat overstated, and I am assuming that it is, that's one cheap stock. Heck one could probably cut up its rigs and sell them off as scrap metal an come close to getting that much money out of them....

A couple of weeks ago, Seahawk's CEO Randy Stilley confirmed this assessment of the value of the company's assets saying the following:

This is something that is just kind of amazing in a way. If you look at the underlying asset value of our rigs: five million dollars. The scrap value of a jackup is about eight or nine [million dollars], and that’s assuming that you get almost nothing for the steel and you just start taking stuff off of there; mud pumps, engines, top drives, cranes, draw works. If you start adding all that up, that alone is worth more than our current asset values based on our equity.

Now you can also say, “Well, if they’re not working, they’re not worth much,” and we’re not likely to just start cutting them up for scrap, but I think that’s kind of an interesting reference point that you don’t want to forget about because we’re trading at a very low value today. 


Now no one knows what is going to happen with drilling in the Gulf of Mexico, but I strongly believe that there is a large margin of safety in buying HAWK today if you can hang on for what will likely be a bumpy ride.


No position in HAWK other than in CAPS 

Kudos to Greenbakd for its great write-up on the company


11 Comments – Post Your Own

#1) On June 30, 2010 at 12:06 PM, portefeuille (98.79) wrote:

Kudos to Greenbakd for its great write-up on the company

HAWK liquidation values

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#2) On June 30, 2010 at 12:11 PM, portefeuille (98.79) wrote:

Macquarie Securities Small and Mid-Cap Conference Presentation (pdf)

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#3) On June 30, 2010 at 11:10 PM, rd80 (96.79) wrote:

Be very careful valuing things like rigs based on scrap value. 

A scenario that has rig demand to the point where companies start scrapping them implies there wouldn't be much demand for the machinery on those rigs.

Also, even though the equipment has value, the rigs themselves may have oils, paints, hazmat, marine growth and other stuff that costs money to get rid of.  

I can't speak to rigs, but cost models for ships sometimes assume there is a cost for disposing of the vessel at the end of it's service life rather than a salvage value.

That doesn't mean HAWK isn't trading below liquidation value, just that those scrap value predictions should be taken with a small grain of salt. 

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#4) On July 01, 2010 at 12:38 AM, rwebankrupt (75.75) wrote:

 About as much safety as not wearing a condom when having sex with someone with AIDS

$73 million in cash...what is their Mexican tax bill? 100 200 mil?

What was their insurance coverage on  Pride Rig? 10%? 30%

Form 8-K for SEAHAWK DRILLING, INC. shows they can not pay their employees


Greenbakd you would make an excellent risk manager.

TMFDeej knows alot about baseball
rd80 has the most interestingand educated take I have ever read and look forward to reading his blog.


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#5) On July 01, 2010 at 3:53 AM, TMFUltraLong (99.59) wrote:

But given that they wont be turning anything close to a profit until 2012 they'll burn through up to $10 per share in cash until then... there goes your book value....


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#6) On July 01, 2010 at 6:05 AM, TMFDeej (98.34) wrote:

Excellent point rd80.  Thanks for the comments.  I still think that HAWK is dirt cheap.


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#7) On July 01, 2010 at 6:08 AM, TMFDeej (98.34) wrote:

That's completely disgusting and tasteless rewbankrupt.  Please refrain from commenting on my blogs in the future.


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#8) On July 01, 2010 at 6:09 AM, TMFDeej (98.34) wrote:

Hey Ultralong.  Thanks for stopping by.  I always love your recs and blog posts.  You have a very good point in that the cash cushion for companies that are cash flow negative is never as big as it looks.

See you around. 


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#9) On July 01, 2010 at 6:15 AM, TMFDeej (98.34) wrote:

Re our troll discussion from my other post, rwe:

It's not what you said, it's how you said it.  

Calling someone a Troll is not name calling, it's part of the Internet vernacular: 

While it may be difficult to maintain a level of civility in an anonymous forum like this, I respect the comments of people who do so much more than those who are rude.


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#10) On July 01, 2010 at 8:41 AM, TMFBabo (100.00) wrote:

Whether I agree or not (I often do), I enjoy your analyses.  I usually just read, rec, and move on.  Keep 'em coming!

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#11) On July 01, 2010 at 9:29 AM, TMFDeej (98.34) wrote:

Thanks bullishbabo.  Have a good one.


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