FGI and Geiche
...first FGI.
I want to love FGI, but in investing - one can not let emotion overcome logic. This is a great company - performed and was managed brilliantly. The yard of choice... and perhaps "the" boutique high flyer of the entire Oilpatch run of 1997-8 and for all well deserved reasons.
But; many people, much brighter and much more experienced than I, think that the Offshore Rig Construction Boom that just ended; was a pretty major blip and vastly exceeded what even the most optimistic can expect to see in the next 2,3, years at least - if even ever.
The Street, the financial community, the bond market, the analysts, the lenders; EVERYONE punished all of those who over-bought & built Offshore Rigs of late. Look at what FLC & PDE among others went through and are still going through here... Dayrates and the demand do not support anything near the level of new construction that FGI saw. Virtually no one in the Industry see's New Construction at that level for some years to come. The Banks & the Financial community will not allow it ! These types of mistakes, which put the survivability of some companies in question; will not be made anytime soon again.
FGI's "pie" just shrank by 1/3rd to half,to even
2/3rds in some opinions.
They did not do anything wrong. They made the most of a one time thing... Even if they gain market share and focus on refurb and repair; they can not replace what that historic flow of $100M orders did.
FGI has to adjust to a much smaller base of potential work in the nearterm. That is why FGI is near a 52 week low; when the OSX is at near a 52 week high. The "potential" pie is much, much smaller - period.
The short position remains very controversial, if not somewhat mysterious - to say the least. Folks; the "Golden Child" of the Oilpatch does not have a near sector leading 21% of the float - sold short; for no reason ! Wake up ! ... I did, finally.
It is not that I hate FGI, or don't think that they are indeed perhaps the very best in the business at what they do - they are ! But, if the "pie" shrinks by 1/3rd, or 1/2, or 2/3rds - it no longer matters how good you are !
I gave in; I no longer have a position in one of my favorite companies. The Insider Selling, while explained to a great degree by some - still troubles me. All insider selling can be explained by the same reasons sited here by everyone. But, when the insiders can buy their stock - into the face of being sold off from $48 to $10; directly into the face of a sector turnaround; and they do not - that speaks volumes. With virtually the entire stock market at record highs - and the OSX; why wouldn't someone put the money back to work in FGI at 1/4th of its former high, at a near 52 week low, and when the entire Oilpatch is turning around ? ... sure, they may not have been able to buy of late due to the HLX merger, but they could have at anytime up untill just very, very recently. If FGI was $28 here, I wouldn't expect insider buying; but at $11 ?!?!?!?! Gimmie a break...
Also; the short position ! Short position is nearly 21% of the float ! That is huge. Trust me;no one made a $30 Million bet against FGI on a mere whim. Think about it. Of all the stocks to short to this degree. At first, I thought maybe someone knew something that someone else didn't. Or, as I still think; that to a substantial degree - some of FGI's short interest is a "hedging short" on the long positions of major shareholders. What I now feel, is that those "pure" shorts didn't have to have any inside knowledge of FGI - quite the opposite in fact. All they had to know; was that the Drillers & Oil Co's were not and could not pursue this type of Rig Construction - even if they wanted to; and they didn't want to ! - ie: all the project cancellations, lawsuits, the fall of dayrates upon contract turnovers - all the financial problems and the punishment by the Street and the Financial Community of the FLC's & PDE's who bought the products that FGI builds; makes any recovery to former revenue levels virtually impossible...and totally improbable.
The short's didn't have to talk to FGI - they only had to talk to the drillers and the Banks ! - they knew FGI's potential "pie" was shrinking in warp speed before their eyes...
No one can seriously doubt the fact that the Construction of Offshore Rigs is going to be substantially lower than it was in the last 2 years. FGI's move to make a diversifying acquisition was out of necessity imho. So where does that leave us now ?
1. The Merger: I think that perhaps now; FGI needs HLX more than HLX need FGI. Also, any overnight turnarounds are overly optimistic imho. - for shareprice, or for operations. FGI bit off quite a project in HLX. There is quite a bit of assimilation to be done here. This level of manufacturing integration does not and can not happen overnight. The Street has no real way to value the synergies right here. What if FGI inherits HLX's low margins and cost & time over runs. What if HLX's competitors put the pressure on FGI/HLX and underbid the shipbuilding side of the business - especially the recovering Asian companies. FGI has no piece of cake here. While I think the merger is good; its benefits will not be of the over-night variety. Also, if FGI gets sold down to $9 - will HLX still take the deal ?
2.The Short Position: If there is a substantial portion of the shorts - hedging long positions; where do they cover ? Imho; they were instituted at around $22-$24 if memory serves... maybe they do not get covered untill someone retires etc... ? For the "pure" shorts who are betting that FGI will continue to go down in value; where do they cover ? On the merger? - at the "bottom" ? - I think there is a good chance that the "pure shorts" start exiting on the first signs of FGI recovering here - that's good; but the question remains; what percentage of the shares short - are "pure" shorts ? - and also, will the continued Insider Selling offset the short covering ? Will the Insiders continue to sell into strength here ?
3. Insider Selling: They still control a huge amount of the shares. Holloway is retiring in 2 years - will he sell then, in his last year, or start with planned selling now - continuing untill he leaves ? How much more insider selling is there left ? This creates a bit of an overhang on the upside and also cancels out the benefit of some of the short covering. There are potentially more insider shares to still be sold, than shares short, to cover...
IMHO; the Street will take a "Wait & See - Show Me" attitude toward FGI. They want to see Rig Construction orders for FGI; shipbuilding orders for HLX and they want to see how the integration is assimilated. I think the Street will demand to see 2-3 quarters of numbers; before they even start to buy FGI/HLX.
Tradingwise; FGI & HLX certainly look ripe for a bounce play; once they bottom out here on the Merger play. But, how much upside will the Street give them - and will they indeed wait to see 2-3 quarters of numbers before they get back on the wagon ? Is FGI/HLX somewhat "deadmoney" for a couple of quarters ? Does FGI/HLX present any risk vs. reward advantage given the plethora of unique circumstances here - in comparison to the rest of the Oilpatch ?
I don't think so... why venture into the abyss of the unknown, the unforseen and the insider & short sold... when there are so many other "clean" plays ?
Maybe a $3 bounce play from $9/$10 to $12/$13 here shortly - after that; I'm on the "show me" bandwagon - and I want to see 2-3 quarters of numbers... just too many unanswered questions.
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... now Geiche: lighten up. These are not internet - mass daytrader room run stocks. also, while I was picturing a New Hampshireish, or Maine setting - the Capital of the Liberal Left Coast itself - San Francisco makes sense... also, I knew I had the Volvo nailed... Beard ? Pipe ? and the physical size ? - admit it...(VBG).
... and being from Frisco; I won't ask the obvious (VBG) - don't ask - don't tell right ?
ROFLMAO ! ... lighten up Quiche Man ~ |
