Updates & Review - Megapost Part #1

Philo updates on Valaris, Coursera, Jumbo and Avon Protection.

Jun 03, 2023

∙ Paid

The teachings of George Soros in short note form. Link.
Why I don't like Transocean. Link.
Downside at MRNA. Link.
When ARKK unwind. Link.
Apple's Microsoft moment. Link.

Notable Tweets

The Harrison Ford strategy of robustness and patience to make it big. Tweet.
Philo nails the bottom on the Sterling/Dollar! Tweet.

In this multi-part megapost (this is Part #1) I will review the performance of all the companies I’ve written about, and update you on a number of them.

Philoinvestor launched in October 2021 and since then I have published 17 paid posts. See them below.

For Part #1 I have included updates on Valaris, Coursera, Crypto, Tenneco, Jumbo and Avon Protection.

Paid Post List

Valaris

Valaris stock is up 75% since then, and even touched 128% at its peak this February. The offshore sector is chugging along, with upwards pressure on day rates but some headwinds from the fading crude oil price.

Industry contacts have told me the sector is feeling hot right now, after a decade of pain and volatility. Offshore conferences are packed with attendees, and they are very bullish.

But naysayers are throwing harsh criticism against the company and management.

What’s the problem?

People are complaining about the Valaris chartering strategy and are not happy with the day rates that some drills were chartered at. But here’s some context on that: Firstly, a number of the contracts have priced options attached to them for contacts negotiated 2+ years ago when rates were considerably lower. The company had emerged from restructuring and only had 4 active floaters, as they had chosen to stack many of them to preserve cash and get through the hard times. They later won contracts to reactive some of those stacked assets - at a time when day rates were at the low 200k/day area. Today, rates are at a high 300k/day to low 400k/day area. That massive spread is causing some investors to complain - and this is why there is lag from where market day rates and what average day rates the Valaris fleet is achieving as a whole. Management has communicated however that starting in 2024 and as contracts reset to higher rates and currently-stacked assets starting working at good rates - operating leverage will kick in and the bottom line will benefit handsomely.
Fear of missed opportunities. Some investors seem to worry that Valaris would miss out massively if they did not exercise their options on the DS13 and DS14. These two ships (both newbuilds) are assets that Atwood Oceanics ordered before being sold to Ensco. Valaris is the result of the merger between Ensco and Rowan Drilling, so those options now belong to VAL! During VAL’s restructuring the options were renegotiated with DSME (the shipyard building those drills) giving Valaris an option for $119 mln and $218 mln for DS13 and DS14, respectively. Besides the payment to the yard there is a reactivation cost on top as the assets have been stacked. The total cost to purchase those rigs and get them operational is roughly at $200mln for DS13 and $300mln for DS14. At these prices DS 13 looks very attractive while DS14 is more in line with other assets. They are both equipped with two BOP, so no extra money required to equip them with that which is something most customers want. It seems to me that Valaris will exercise the DS13 options and look to extend the option (expiring end of year) for the DS14 by paying a fee to DSME. But even without these two rigs - Valaris has a high quality fleet and can keep earning money for decades. Not exercising these two options is hardly disastrous!
The capital structure, First Lien Notes and the much-wanted RCF. Well, no need to worry about that anymore as Valaris managed to successfully refinance its Notes and add a revolver (Revolving Credit Facility) on top - giving it much more flexibility. The older First Lien Note was as a result of its bankruptcy restructuring in 2021, it had an outstanding amount of $550 million, maturing April 2028 and a coupon of 8.25%. But in April of 2023 they retired that note and issued another one for $700 million, expiring in 2028 and with a rate of 8.375%. On top of that they announced an RCF of $375 million.

So I guess no more worries, right?

Coursera

Coursera was the first equity piece on Philoinvestor, and I chose to write about a company that had everything the typical value investor doesn’t want to see.

Namely, a recent IPO of a non-profitable technology company that signalled that it would spend money to achieve growth.

But that didn’t deter me, and I started digging. This is how I ended the piece:

Coursera is currently selling at $4.27 billion ($31 / share), and has FY2021 revenue guidance at ~$400 million. It is selling for more than 10x sales. And if that were not enough, it isn’t even profitable! Infinite price to earnings! How can you value this company?
Going back to first principles; it’s not price to sales, price to earnings or any metric that judgers whether an investment is good or bad.
Fundamentally, it is the value creation (or destruction) going forward, relative to the price you pay for it that will help you make your investment decisions.

The stock is down 60% since then, amidst a market where non-profitable tech got completely killed.

But how is the company doing since then?

Philoinvestor