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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: upanddown who wrote (51436)	9/19/1999 10:52:00 PM
From: SliderOnTheBlack	Read Replies (2) \| Respond to of 95453

John Clarke; you missed one VERY important stat on FGI's backlog ! re:Dec 31,1997----324.6 Dec 31,1998----364.7 Mar 31,1999----407.0 Jun 30,1999----343.9 <<In the first six months of 1999, the backlog shrunk 20.8M or approx 5.7%. >> First; per FGI's comments on their backlog from the most recent 10 Q: "...The Company's backlog is approximately $343.9 million as of June 30, 1999. Substantially all of this backlog consists of projects related to deep water drilling rigs. Some of these contracts are subject to cancellation by the customers; however, the Company has had no indication that any of its contracts will be cancelled. The backlog amount includes a $143.5 million contract for the new construction of a Friede & Goldman, Ltd. designed Millennium S.A., semisubmersible offshore drilling rig that is subject to the owner's securing rig financing. Such financing is expected to be secured in the third quarter of 1999. >> I think you need to take the peak number of $407 M on March 31st, then subtract the $343.9 present backlog = a 16% decrease; but actually the Street is subtracting FGI's own "spec" internal order for the millenium of $143.5M = a "real backlog of $200.4 M or 1/2 of where it was March 31st. Many people view the addition of the Millenium to FGI's - "backlog" as similar to a Home Builder counting the sales price of a "spec" home he is building as "income" on his credit application for a loan to get the $ to build the thing... !!!! The most generous on the Street view FGI's backlog as the $343M - the $143 internal spec order; or $200 Million. ie: FGI is still awaiting the financing. I'll even give you the "financing"... the point is; subtract FGI's own internall "spec" project and the backlog is a real world $200 M or a drop of 50% since March ! .... this is the single answer I got from someone of why FGI is in freefall... again; not "my" original valuation premise. -------------------------------------------------------------------- As FGI;s revenue run rate is as follows from their recent 10 Q" Comparison of the Three Month Periods Ended June 30, 1999 and July 5, 1998 During the three months ended June 30,1999, the Company generated revenue of $133.5 million, an increase of 50.7%, compared to the $88.6 million generated for three months ended July 5, 1998. The following table sets forth revenues attributable to new rig construction, conversion/retrofit of rigs, shipbuilding and ship and rig repair, equipment manufacturing and other activities for the quarters ended June 30, 1999 and July 5, 1998. (In thousands of dollars) Three Months Ended -------------------------- June 30, July 5, 1999 1998 ---------- ---------- New rig construction $ 75,793 $ 17,351 Conversion/retrofit of rigs 44,884 40,431 Shipbuilding and ship and rig repair 5,253 17,519 Equipment manufacturing 7,427 13,063 Other 392 1,944 Intersegment eliminations (260) (1,711) ---------- ---------- Total revenues $ 133,489 $ 88,597 ========== ========== ------------------------------------------------------------------- I suggest that the Street is looking at FGI's "real" generated "outside sales" backlog as $200 Million right here. At the last quarters revenue of $133.5 M, this equals $44 M per month. FGI actually has approx 4.55 mos of backlog revenue.ie: $200 Million divided by $44 M per month = 4.55 mos. Also; concerning Ocean Rig's 2 Bingo Rigs - FGI got a $28 M check - which comes off of that $200 M "real world - outside sales backlog" number; and another $28 M check comes in soon; that's $58 M off the backlog. Using "my" number of $200 M - $58M = $142 M backlog remaining; or being generous; and letting FGI book their own sale (spec order) to themselves on the Backlog books (even before financing is complete - love those accounting rules)- use FGI's own number of the $342 - $56M (the 2 - $28 M checks for Ocean Rigs Bingo rigs) = $286 M in backlog. Bottomline - worst case scenario; using the concept of the Backlog as only counting "outside generated orders" and not internally booked "spec" projects - FGI has $142 M backlog at a $44M run off rate; and at best has a $286 M backlog - at a $44 M run rate. Also, for those who think those cold stacked jack ups are going to be generating any major revenue in the next 6 mos. or so - read the interview with FLC - as they have by far the most cold stacked jack ups... don't bank on any revenue from this anytime soon. Also; you guys keep talking about this type of work as generating some serious degree of revenue ?!?!?! - look again at the 10 Q revenue breakdowns ! See those 2 real large figures for : New Rig Const. - $75 M Conversion/Retro fit- $44.8 M - then notice that small figure for - "ship building and RIG REPAIR - for a measley $5.2 Million.... yeah - a whopping Five Mill - and that included Ship repair/building !!!! If you think running those jackups "through the car wash & then a quick lube job (VBG)" is going to support this company.... think again folks ! ------------------------------------------------------------------ The backlog situation is not a positive folks - why did FGI breakout the Millenium on the 10 Q ? - because of my example of the new home builder... yes, they can do it. But, which is better; if FLC, or DO gives FGI a signed contract for a $150 M Rig, or if FGI buys a hull on spec and books their own project on the backlog - before financing is secured ? .... and you STILL wonder why FGI is down from $18 to $10 here ? ... do you think ANYONE on the STREET is seeing the backlog the same way you are John T Clarke ???? .... I dooooooooooooooon't think so. ------------------------------------------------------------------- That takes us to the crux of the entire issue - fundamental valuation: Anyone; explain to me - how FGI is NOT substantially overvalued to all of their peers - ie: MDR HLX UFAB per these valuation metric comparisons ... UFAB - a fab co. trading at 1.25 x book value & .59 x sales. biz.yahoo.com MDR sells for 1.16 x book and .45 x sales biz.yahoo.com HLX - trading at .99 of book value - with a much, much bigger backlog than FGI and a lower multiple of price to sales .17 x sales. biz.yahoo.com FGI - trading at 2.41 x book value - .52 x sales FGI is 3 times the price to sales multiple of HLX, 15% higher than MDR FGI is double the book value multiple of UFAB & MDR and nearly 2 1/2 x HLX's price to book multiple..... ... and MDR has a backlog 9 times that of FGI - has $10 per share in cash - literally nearly twice as much CASH in the bank as FGI's most generous accounting of their backlog ! - and FGI is valued higher than MDR on a price to sales AND on a price to book basis ?!?!?!?!!?! HELLO WORLD !!!!! ?????? FGI is valued a DOUBLE MDR here !!!!! The case can be rationally made that FGI right here - right now; using John Clarke's most optimistic numbers - is the most overvalued fab company in the sector; and is valued nearly DOUBLE to its peers with far, far poorer fundamentals than certainly MDR and arguably UFAB; and HLX ??? tough call... HLX's is still much larger. This thread is familar with - Price to Book & Price to Sales... so why is ANYONE pounding the table for FGI as being cheap here ? It is NOT cheap here - it is STILL valued nearly DOUBLE its peers with decling fundamentals ! .... I humbly suggest you review the numbers - then tell me where the bottom is. Here's one case: at the peer avg of: price to book of the 3 peers averages 1.14; FGI @ 1.14 x book value peer avg; $4.39 x 1.14 = $5.01 FGI @ peer avg .41 x sales; 20.89 x .41 = $8.57 ... so we have FGI at a multiple of book value at $5.01 and at a multiple of salesa at $8.57; if you average the two = $6.79 per share. Lets hope nothing happens to that sales number; because that's the only thing supporting a valuation over $5 bucks imho... By the way: being a relatively new company - not that far from its original IPO - FGI also has a substantial number on the books for goodwill... just another item. ... and you thought I was kidding about the $5 figure didn't you ? oh; and John C; another thing; per your comment about FGI'ers probably sitting around shooting the breeze... The bought some new yards at the peak of the cycle - lots of capacity, lots of equipment, lots of manpower - and their topline and backlog supported it. Now does it ? Will it in 6 mos ? ...some on the Street do see more than a few FGI'ers sitting around very soon - in fact; that is their entire point.