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