Welcome To The Tuscany Driling HUB On AGORACOM
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Message: Jennings Report On Tuscany
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TUSCANY INTERNATIONAL DRILLING INC.2 (TSX-TID Recommendation: BUY James Humen
Previous Close: $0.48 12-Month Target:
$1.40 (403) 292-9487
james.humen@jenningscapital.com
Potential Return 191.7% FYE: DEC. 31
EBITDA
(US$MM)
EBITDA
Margin
CFPS
(US$/sh)
EBITDA/sh
(US$/sh)
Market Cap (MM) $180 2010A (7.5) nm (0.05) (0.03)
52 Week High $2.16 2011E 32.0 20% 0.05 0.09
52 Week Low $0.48 2012E 99.2 28% 0.20 0.26
Tuscany is trading at historic lows despite recent improvements in margins and utilization. We continue to believe Q4/11 will be the start of a new beginning for Tuscany and estimate EBITDA growth of 90% over Q3/11. Key reasons to Buy Tuscany at this level are as follows:
Utilization – Utilization continues to improve as Tuscany develops a presence in its market
jurisdictions. The Company recently contracted Rig D6, located in Brazil, for a one-year contract and also contracted two rigs in Trinidad.
Contract Length – Approximately half of Tuscany’s rigs are contracted throughout 2012, giving some
certainty to the Company’s top-line revenue.
Margin Improvement – Last quarter, EBITDA margin was 22%, increasing from 18% in Q1/11. We
feel there is room for improvement in margins as the last two acquisitions are digested and streamlined into Tuscany’s current operations, with target margins in the 28%-30% range.
Rig Demand – The E&P companies releasing capital budgets in Tuscany’s operating domain are
maintaining quite aggressive 2012 exploration programs. Coupled with the significant number of wells that must be drilled in 2012 relating to the blocks awarded in the 2008 Colombia bid rounds, we feel there will be continued demand for Tuscany’s rigs.
hare Price/(Net Tangible Book Value) – Currently, Tuscany is trading at 0.5x its net tangible book
value and is likely hitting the radar screen of some of the larger drillers, although, overtaking the major shareholders (Maurel & Prom and management) would likely require a take-out premium of multiples over its current share price.
As we have discussed in previous reports, execution continues to be the key driver for the stock, with focus on the next two quarters. We feel, given the rigs currently under contract and the average contract length, that the Company is well poised to execute and achieve material EBITDA growth in Q4/11 and Q1/12.
www.investorvillage.com/uploads/.../TOPPICKS201220111216.pdf
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