Market Performance
Continuing with the new format this week…
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Markets gave back some gains over the past week but nothing noteworthy over the past month and a half…
Market Stats
With the S&P 500 at the 3400 level and projected earnings of 166 in 2021 that leaves us with a 20.5x earnings multiple on next year’s projected results…
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Not entirely cheap when you look at past averages…
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Plenty of press coverage on the divergence between growth vs. value and large vs. small but this price to sales chart visually explains it best…
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Business activity continues to pick up pace…
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The August jobs report released last week showing another 1.4m jobs added, a 5% increase in hourly wages,
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Quick Value
Liberty Oilfield Services (LBRT)
Last week, oilfield services giant, Schlumberger (SLB), announced they will sell their North American fracking business to Liberty Oilfield Services (LBRT) in exchange for a 37% ownership stake in the combined business.
2019 figures aren’t all that useful in oil & gas at this point but the net result is a much larger player in the fracking industry…
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…along with one of the better balance sheets in the industry.
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This is a pretty fascinating transaction for a business that has historically been a serial acquirer (SLB) to turn around and divest some 10% of its total revenue base. And the oil industry still has a long way to go in returning to the glory days… (if ever)
Liberty Q2 results highlight this pretty well with revenue down 84% to $88m from $542m. This is what a business looks like when customer needs grind to a complete halt.
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Most competitors are highly levered and potentially majorly disadvantaged as a result… But is this an industry that has a long-term future? Look at what happened with major coal companies following the wave of bankruptcies, even with clean balance sheets results have been lackluster…
There was never much of a shakeout in US crude production following the oil price collapse in 2015-2016… US oil production actually grew from 2015 to 2020. Perhaps that shakeout is taking place today?
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One bright spot for a declining business is the working capital benefits adding to cash generation (even if only temporary). This has given Liberty a chance to produce some good cash flow despite revenue struggles.
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An already-solid net cash position plus the combination of Schlumberger’s OneStim division could position Liberty well when or if industry demand starts to turn… Management is confident that Q2 results marked a low point in demand.
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Transformational acquisitions have a mixed track record but this could be an interesting time to take a look… (Maybe even Schlumberger following the divestiture!)