Imho - Merrill has raised SERIOUS Questions about FGH !
Merrill has an excellent Oilpatch Analyst staff; I would HIGHLY recommend trying their free research site - here's the link & in return for the free promo for Merrill here; here's a synopsis of what "I" think is germane concerning what they have to say about FGH.
askmerrill.com
After all the Street.Com expose type of accounting question articles, after all the commentary about FGH seemingly being unable to "tell it all, tell it now" posted here on SI etc. - Merrill imho, is clearly raising some real issues that in "my personal opinion" are RED FLAGS.
I asked earlier today on both Yahoo & here on SI; for anyone to present a fundamental case for FGH being "cheap" here - no one did. This stock epitomizes the concept of "it must be cheap because its selling for a helluva lot less than it was" - well folks - sometimes 75% off - is still not a bargain...
I am a former "long" shareholder who has not liked the way management has handled communication with its sharelholders. fwiw - I have TOTALLY lost trust & confidence in anything FGH management has to say. I have NOW also lost confidence in FGH being able to operate its own God Damned business - re: the independant project managers being brought in to finish Ocean Rig ... - what a joke ! - and we wonder why FGH was indeed the butt of a public conference call joke between PDE and analysts of late ?!?!? I also wonder what the hell was JL smoking when he decided to merge with HLX - only to now be potentially selling off the very assets he just bought and having to mark to market existing contracts taking "legal" accounting steps to at least quench the stench on what Merrill refers to in its "quality of earnings" comments .
Here's my take on the Merrill report on FGH:
1. Ocean Rig Settlement:
... everyone was euphoric on this - but ! no one ever brought up these issues !
a. FGH must pay $75,000 per day - capped at $7.5 M per rig, if the rigs are delivered late. Want to bet on FGH's "on time" record here ? - how about the impact of potentially losing key former workers who took other jobs during these layoffs of late ? Do you think FGH is in a better, or worse position to deliver on time ? - that's rhetorical by the way.
b. An Independent Project Manager is being appointed to manage "FGH" here ?!!?!? HELLO ! - the once alleged "yard of choice" - now needs its own personal outside management team to run its CORE operations ?!?!?! - now that part of the settlement was one hell of a vote of confidence in FGH's people wasn't it now ?
c. FGH - "expects" that it will now break-even, or post a modest profit on Ocean Rig ? - quote - unquote ! Now, that is also one hell of a confidence builder is it not ? "Break EVEN ? - and for the record - Merrill's estimates assume ONLY a "break even." - can you blame them (VBG) ?
2. re: Petrodrill
... delivery delays have sparked contractual disputes with Petrobras (gee - getting to be the new mantra for FGH here - instead of "yard of choice" - Did I here someone say that now it's - "sooner, or later - or sue us" ? ...(VBG)!
*** It is also unclear "WHO" will absorb the cost over runs,or the lost present value of lower dayrates these rigs may accept to secrure contracts - according to Merrill. - yet, another potential $ problem for FGH ?
ACCOUNTING ?'s
Merrill states:
..."under merger-purchase acounting FGH will mark up the acquired HLX contracts on its books to "market value" to include a 10% to 12% margin. HOWEVER the acounting does NOT follow the economics of the construction project since it may be cash flow BREAK EVEN AT BEST."
*** THAT IS A BIGGIE ! THAT RAISES SERIOUS QUESTIONS on how one should evaluate the "QUALITY" that Merrill refers to when looking at FGH's earnings - now, while that is all SOP and "legal" accounting practice; can you believe a company can do this ?!?!!? - it's incredulous imho ! .... FGH commented on amortizing "items" in Goodwill going forward. While this is all "legal" it certainly imho; is NOT something that most investors find attractive to say the least... RED FLAG imho ! - Maybe that is what Merrill is talking about when they reference "QUALITY OF EARNINGS" ?!?!?!?!?!!!!!!!!!!!!!!!
"quality of earnings" - remember that phrase 6 months from now folks - it will be a boomerang - bank on it.
3. Merrill ..."STILL I-T CAUTIOUS" on FGH
"earnings visibility AND QUALITY over the next several quarters are likely to REMAIN WEAK".
!!!!!!! HELLO ! - ANYONE LISTENING ? - or, are the pom poms covering your ears and eyes ?
And "THE BOMB" -
..." WE BELIEVE THAT GIVEN THE NEAR-TERM WEAK EARNINGS QUALITY, CASH FLOW FROM OPERATIONS WILL NEED TO TURN POSITIVE FOR A FEW QUARTERS BEFORE INVESTORS REGAIN CONFIDENCE IN THE STORY."
*** "turn cash flow POSITIVE" ? - "TURN" ? - as in they ARE NOT presently cash flow positive ?!?!?!?!!?!?!?
DO YOU WANT TO HOLD ANY STOCK THAT IS NOT CASH FLOW POSITIVE - that may not see its subsector recover untill 2002 ?
Merrill said "the sooner than expected resolution of the Ocean Rig dispute MITIGATES THE RISK OF A CRIPPLING FINANCIAL SETTLEMENT AGAINST FGH."
"crippling" financial settlement ? Was Bankruptcy looking possible without the Ocean Rig settlement ?
=================================================================
There are the usual Strong Buy, Buy, Hold, Sell, ratings on stocks ; in my personal opinon; for FGH - there should be a "DUMP IT NOW" - give it away, pound a wooden stake in its heart & shoot all your stock certificates & annual reports with a silver bullet" rating (VBG).
Watch Oil retrace another $5, $7 ? here and keep on waiting for what this earnings report could POSSIBLY say here ? - the only thing I can see is more cheerleading about the future... sorry JL; some of us are not buying that BS any longer - SHOW US THE MONEY - period ! - but, per Merrill's comments - maybe you cant ? - but, you are doing one hell of a job loading up goodwill & marking to market old contracts etc... christ; what are you going to do when you actually run out of the accounting bag of tricks ?
... put a fork in it - period.
And remember:
You could of got out at $11
You could have taken the tax loss deduction
You could have ...
The true cost to holding FGH here has been the missed opportunity to board the BOOM 2000 Train which has allready left the station...
$lider
... because I can ~ |
