Maritime Industrial Services MIS NO
January 13, 2011 - 11:21am EST by
2011 2012
Price: 11.95 EPS $0.00 $0.00
Shares Out. (in M): 47 P/E 0.0x 0.0x
Market Cap (in $M): 94 P/FCF 0.0x 0.0x
Net Debt (in $M): -16 EBIT 0 0
TEV ($): 78 TEV/EBIT 0.0x 0.0x

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The Situation
MIS is quoted on the Oslo Stock Exchange. It is a construction company which builds, repairs and refurbs oil/gas/petrochem plant, what the company calles Traditional Works. It also has a new build division which builds jack up rigs though this is winding down because, er, nobody wants it to build any rigs. The Traditional Works business has been going for 30 years and has been reasonably steady and profitable, it probably made $25m in EBIT in 2010 with very little tax (MIS is incorporated in Panama). New Build started in 2006 building jack-up rigs and got into trouble in 2008 when it had huge amounts of working capital tied up in the rigs and customers trying to renege on the purchases. The result was very high debt levels and major financial distress.
Since then the company has managed to finish most of the new build rigs and sell or restructure all but one of them. Debt has been paid off and the company now has a pro forma cash position. There is one jack up left which the company is finishing off in the next few months for its own account. It will then be part sold or sold entirely. The company says it has received an offer for this rig of $160m. 
The Valuation
I buy businesses trading at a discount to their balance sheet values so my first valuation basis is the balance sheet. Assuming the last jack up can be sold for $160m my pro forma net net of the business (ie current assets minus all liabilities) is NOK 21, so the stock is trading at 57c in the dollar of its net net. This assumes that it takes $45m to finish the jack up and that another jack up being finished for a customer costs $30m (with a final payment from that customer of $30m). The costs risks here should be well understood as the company has completed four near identical rigs already. However, clearly they are big numbers relative to the market cap.  The big risk on this valuation basis is the value of the final rig. My sources suggest that $160m is bullish but that $140m is definitely do-able at current rates, this would equate to a net net of NOK 18, or 67c in the dollar.
Assuming the rig is sold for $160m there will be pro forma cash of $108m, though there is likely to be some flow into working capital (in the Traditional Works). The Traditional business made c$25m of EBIT in 2010, and a 5 year average of about that. Putting this on a PE of 6x (hey, this isn't Coca-Cola you know) would give us a value of $258m or the equivalent of NOK 32. This is a purchase at 38c in the dollar.
The Risks
This is a contractor so it comes with the usual risks of prepayments, accounts receivable and generally volatile cashflows. That said this risk is much reduced in the traditional business where the project sizes are smaller, the cashflow profile is much more attractive and the business is diversified across different parts of the infrastructure chain and different industries. Other risks are that MIS is incorporated in Panama, information is not perfect (accounts are OK and audited by Deloitte Touche but US GAAP it aint) and management haven't exactly covered themselves in glory over the last few years in terms of capital allocation. But then it is very cheap.


- sale of the final rig highlights the cash pile
- introduction of a dividend said to be on the agenda
- wind down of the new build business leaves a much safer business
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