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Gold/Mining/Energy : FLC Falcon Drilling
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To: diana g who wrote (60)3/15/1998 8:58:00 PM
From: Czechsinthemail   of 461
 
diana,
The RB/FLC combination may cause some short-term problems, but longer term it has one very important benefit: it has improved the combined company's debt rating. This means lower borrowing costs and higher regard in the investment community. Similarly, the risks around their barge fleet are probably being over-discounted, since to date I've seen no evidence of weakness in this part of the company's business. At the point oil prices start to strengthen and the bidding for drilling rigs intensifies, this part of the business becomes much more valuable, because its marginal rate increases and quicker contract turnover will add to the company's bottom line in very dramatic fashion.
Regarding NE and FLC, I think they are very similar companies in one key respect. Both are looking toward a strengthening of their business based on deepwater rigs coming into service in the near future. Any shipyard delays are likely to penalize earnings. This happened for NE in the 4Q. My view is that both companies will probably do very well for some time to come, but FLC is currently being viewed through half-empty glasses while NE is being viewed through half-full glasses. IMO that translates into a relative undervaluing of FLC. As time goes on, I think FLC has much more potential for positive surprises and for appreciation as it returns to a more normal valuation.
Baird
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