Drilling for Value (NBR) – QAV AMERICA 42

 

Cameron: [00:00:00] Welcome back to QAV America. This is episode 42. We’re recording this on the 3rd of March. Australian time, 2026. If you are brand new, welcome. We are two Australians talking about value investing. Tony’s been a value investor for 30 odd years. We’ve been doing a show about value investing in Australia for six or seven years, and now we do one on the American market as well, which we’ve been doing for a bit over a year.

How are you today, tk?

Tony: Good punch drunk from all the movements in the markets over the weekend? Well, since the weekend.

Cameron: Yeah. Well, obviously. Crazy week, uh, middle East War is full on now and it’s. It’s got impacts as of course, for, for investors, but for people that are new to QAV, what you should know is that we have a system, the QAV system that Tony’s developed [00:01:00] over his lifetime of investing that has a bunch of rules that tell us what to do, when to buy, what to buy, what to sell, when to sell.

And it’s at times like these that, uh, I think it, it, having a system really makes it, um. Not, I would, I wouldn’t say easy, but less stressful. Uh, because I don’t have to try and predict where the market’s going or what the market’s doing, I don’t have to think very hard at all really about it. As we’ve said, through all of the cycles, we were just saying on the Australian show, since we’ve been doing the show, we had COVID, we had the boom that came.

After COVID, we’ve had another crash that happened when interest rates started to go up all over the place and the Ukraine invasion happened in 2022. Then we’ve had another boom period coming out of that in the last eight, nine months, and through all of [00:02:00] those cycles, the up and down cycles, the QAV system just.

It tells us what to do, buy, sell, hold, and that’s it. We don’t have to, we don’t have to worry about it. It just, uh, takes us through a step-by-step process of what to do, whether the market’s going up or the market’s going down, or the market’s going sideways. Uh, me as a relatively novice investor don’t need to worry about it.

I just need to do what the rules tell me to do, which is a great relief.

Tony: When do you stop being a novice investor? ’cause you’ve been doing this for six years now.

Cameron: Well, I catch up to you.

Tony: Is there a, is there like a bachelor degree and a master’s degree and then a PhD? You right? I

Cameron: think so. I think 10. After 10 years I’ll 10 years

Tony: a

Cameron: novice.

Yeah. Yeah.

Tony: Because as say you’ve been through plenty of cycles, that’s usually the way that you test someone’s, um, experience in markets.

Cameron: Well, I’ve been doing kung fu for nearly five years. I don’t have my black belt at Kung fu yet, so I think

Tony: Right. [00:03:00]

Cameron: You know, I’m using that as my benchmark. When I get my black belt at kung fu I’ll be able to say, okay, well that took me X number of years, and then I’ll have the equivalent for a QAV black belt.

I can be a black belt.

Tony: Okay.

Cameron: In QAV, but as, as I’ve told you before, at our kung fu school, when you get a black belt, it’s just, you’ve passed basic training. You know, that’s when

Tony: Oh, right.

Cameron: That’s when the real training starts. So that’s when you can, it’s a bit like Scientology. You’re like, okay, well now you can go to the next level of, uh, QAV.

You’ll be able to tell me the secrets, the true secrets of,

Tony: uh, and as your, what is your water bottle? Does it stay in your water bottle at Kung?

Cameron: Hold on while I overthink this. Yeah, yeah.

Tony: Uh, which is the of qd, I think too. Don’t overthink things.

Cameron: Yeah. I also have a sticker on my Kungfu water bottle that says a black belt is a white belt who never quit.

And I think it’s the same as true of investing. We were just talking about that. We’ve had members of our Australian, [00:04:00] uh, QAV club that have been with us for five years and they’ve been through a few cycles as well. And they know that if they’ve just don’t quit, the market turns around and, and things look great.

Tony: Mm-hmm.

Cameron: Uh, so obviously let’s get back to the war. So from an investing perspective. Uh, I’m trying to pay attention to what is this gonna mean for things like oil and gas and gold? Because we have investments in companies. We don’t invest in resources directly with Q QAV, but we invest in a lot of companies that are involved in oil and gas and gold among other resources.

Also, in our US portfolio, we have a lot of companies that are. Transport of oil related shipping companies, et cetera. So I was really interested, uh, to see what was gonna happen with those stocks, uh, this week. [00:05:00] And of course the oil price is going up. Gas is going up a little bit, but oil is going up a lot.

But if I look at the shipping stocks that we’ve got. Uh, in the US portfolio, by the way, the US portfolio, I’ve been running now since, I think it was late 2023. September, 2023. It’s currently up 106%. In that period versus the s and p 500, up 55%, slightly less than 55%. So we’re doing almost double markets, uh, over that period of time, which is two and two and a half years roughly.

If I look at the last, um. 30 days, our portfolio is up about 4% versus the s and p 500, which is down 1.3%. But we’ve got, [00:06:00] uh, uh, quite a few finance and shipping companies in the portfolio. Um, ESEA, Euro Cs, which is, uh, doing okay. I’m trying to just bring up its, uh, poor network connection. You still there?

Tony: Yeah.

Cameron: Okay.

Tony: It’s good down here.

Cameron: Yeah. Um, Euroes has, uh, gone up since the, uh, weekend it’s gone. It was trading at $61 as of, uh, the 23rd of February. It’s now up at $70. So it’s had a good week. Um.

What else have I got here? Sarcos Energy Navigation. Oh my God. It was trading at $30 on the 23rd of February. It’s now at [00:07:00] $37. Uh, stealth gas. Was trading at uh, $8. It’s now trading at $8 68. Gone up a bit. So the shipping companies have done relatively well. Surprisingly, uh, with all of this, I would’ve thought with the straits of ho Moose being shut down, we may have seen shipping companies getting battered, but.

For whatever reason, which I don’t claim to understand, that hasn’t kicked in yet. They’re doing okay.

Tony: Yeah, I think, I think the conventional reason, I don’t know if it’s the case now, um, is that, uh, if there’s a blockage in anywhere in the world of shipping and mean ships have to travel longer, they basically charge more.

Um

Cameron: Oh, okay.

Tony: Right. They’re in like a revenue. Per mile type, [00:08:00] um, cost structure or um, fee structure. So that’s one of the reasons I think,

Cameron: well, I’ll tell you what hasn’t done well in the last week, uh, is some of our Korean stocks career, electric power. You know, we talked a lot about ADR and the implications.

Mm-hmm. Complications of ADRs last week, crew electric powers dropped from $22 down to 1966 in the last week. Uh, kt, which is Korea Telecom, has also well slid a little bit from $24 50 down to 2350. Uh, not sure what’s going on with them and in our QAV lip portfolio. Oh, this is a classic. Do you remember last week I did a deep dive on Bread Financial Holdings?

Tony: Yes.

Cameron: But I said that as I was preparing for that, I was gonna add them to our QAV light portfolio. But, uh, then noticed [00:09:00] that they were, uh, what we call a Josephine, the share price was going backwards. Mm-hmm. So I said I’d have to find something else to buy. So I bought. A company called EW Scripps Co. A, diversified Media Enterprise Ticket Code, SSP.

They were the next on the buy list last week. They went up 20% last week after I bought them. I was like, uh, that’s very nice. Thank you for that. They’ve dropped back to, uh, they’re up 11%, uh, since then, but, um, yeah, they came out with an announcement late last week with their Q4 revenue that said that, uh, fell Q4 revenue fell 23%.

But the share price still went up. I think they sold a station, WFTX, a Fox affiliated station in Fort Myers, Florida for [00:10:00] $40 million, which they said they were gonna use to pay down debt and strengthen their balance sheet. So that may have helped. Whatever reason it came out good, but also I’ve had a, a few things I had to sell, uh, today, or one thing actually I had to sell today.

VLRS. We did a deep dive on them. Not that long ago.

They are a, um, like budget airline.

Tony: That’s right.

Cameron: Yeah. Out of Latin America. Well, they, they’ve not had a good week. Uh, um, it’s uh, been a bit of a disaster for. The poor Mexicans. I dunno if you’ve been reading about this in the news, but, uh, there was some drug, Lord that was executed element, um, uh,

ante. The leader of [00:11:00] the CJNG drug cartel was killed by the Mexican Army or by Donald Trump, depending on who you believe. I think he took credit for it. And there’s been a lot of, uh, trouble in Mexico. Mm-hmm. As a result, become a bit of a no fly zone. Between February 23rd and 24th, over 175 flights were canceled nationwide.

Valis was, primary. Hubs were the hardest hit Guadalajara. Saw a 76% cancellation rate per had a 62% cancellation break, and this is happening right before the 2026 spring break season, which is March 8th to March 22nd, 20,000 passengers stranded in 48 hours. The market is pricing in a massive hit. So that happened.

Then they had a bit of an earnings blood bath. Valis reported an EPS of 4 cents, which missed the consensus [00:12:00] estimate of 27 cents by a bit. Um,

Tony: buy that much.

Cameron: I saw somebody posted on a Facebook page or read it or something the other day saying, does anyone, anyone still say that? Missed it. Buy that much.

They said, they said that at work recently, and the person they said it to is like a Jen Z or looked at them like, what? Oh,

Tony: really? Oh, no,

Cameron: you’re, you’re officially old if you do get smart lines, I think. Yeah. Um, so yes, their, their, uh, results weren’t great and then their 2026 guidance. It wasn’t good. They’re still dealing with engine problems, et cetera, et cetera.

So anyway, lot of, lot of problems

Tony: and airline stocks all around the world are decreasing at the moment. ’cause the oil price is going up.

Cameron: Exactly. And we did talk about the Pratt and Whitney engine groundings, um, when I did the deep dive on ’em. So anyway, bottom line is I had to sell VL VLRS. They were a three point trend line [00:13:00] sell.

But the thing is we do have. Rules that tell us what to sell mm-hmm. And when to sell it. This triggered one of those rules. So I sold it and I replaced it with a company that we talked about, uh, long time ago on the show. D Aos, DAC, which is a Greek, uh, shipping company.

Tony: Mm-hmm.

Cameron: Um. And its share price has already gone up as a result of the Middle East crisis.

Jumped from $108 last week to 118 today. But, uh, yeah, so I added that to our light portfolio this morning. DEOs is a holding company and an international owner of container ships chartering its vessels to a range of liner companies. The company’s principle business is the acquisition and operation of vessels, conducts [00:14:00] its operations through the vessel owning companies whose principle activities, the ownership and operation of container ships that are under the management of a related party of the company.

They have 50 container ships aggregating approximately 329,000 590 20 foot equivalent units. Tuss, I remember when we talked about tus back on the show,

Tony: the backbone of World Commerce.

Cameron: Yeah. Um, so that happened. But, uh, that’s not the company. I’m gonna be doing the deep dive on today.

Tony: Well, gly, why not?

Cameron: Thank you for that Reveal. The sneak reveal. The company that I’m talking about today is Neighbors Industries. No, not owned by Jim Neighbors from whatever that show was. What was that show? Ga

Tony: Gamma, USMC. Think [00:15:00] that the name of the show, was it you? Yeah. You think it gets smart, don’t you?

Cameron: Yeah. Well, golly,

Tony: golly.

Sar Goy, Kyle, get your stuff out.

Cameron: Neighbors Industries. Um, it’s uh, 74-year-old drilling giant that has spent the last decade. Acting more like a distressed debt workout than an oil field service company, but they’re a global oil and gas drilling contractor based in Houston, Texas. They own the world’s second largest land drilling rig fleet with over 250 rigs operating in 20 countries.

But has an interesting story, as I mentioned to you, off air. Uh, of, of Oh, oh, O Oh, hold on. Oh, oh. [00:16:00]

Tony: Cramp. What? Cramp. While you’re fixing your, while you’re fixing your cramp. I was just checking with ChatGPT about a rumor I’d heard about Jim Neighbors that he was actually secretly married to Rock Hudson. But, uh, according to Jet GPT, that rumor isn’t true.

Cameron: Well, that’s disappointing to hear. It’s

Tony: Carly.

Cameron: Oh, that

Tony: was bad. Shaza. Shaza.

Cameron: A bad cramp. Oh. Um, so neighbors drilling goes back to. 1952. Claire Neighbors.

Tony: Black and white.

Cameron: Yeah.

Tony: Yeah.

Cameron: Um, I think they, this is a big thing in Texas. You give boys, girls names, Claire Neighbors, um, grew from a small West Texas shop into the world’s largest land drilling contractor.

But the, the roots of this business actually go back further than that [00:17:00] goes back to the Guggenheim family and their business interests in South America. Now I, I, I knew nothing about the Guggenheims. I mean, I’ve been to the Guggenheim and I’ve been to, uh, when we were at, um, when we were in LA a couple of years ago, we went to the the Villa.

Tony: Mm-hmm.

Cameron: Um, which is. Uh, a recreation of, uh, the villa that was owned by Julius Caesar’s father-in-law, Lucius CalPERS Pizo, uh, which is the villa where they found the pappi that were destroyed when the volcano went up. It’s the, the villa at Hercule. Neum, you know, the villa of the Pappi. Anyway.

Tony: No, I haven’t heard about it.

Cameron: You haven’t, you don’t listen to my podcast since about that time?

Tony: I do, but not for a long [00:18:00] time.

Cameron: When, um, the volcano off of Naples, um mm-hmm. Erupted in 79, ce um, dis Herculaneum was like a resort city not far from that, that sort of area.

Tony: Yep.

Cameron: And, uh. About late 19th century, some guys were digging around there and they came across a hole in the ground and they pulled out these little bits of things that they thought were just charcoal, and they started throwing them on the fire until one of them cracked open and they saw writing on the inside of it.

Tony: Oh.

Cameron: So it turned out that, uh, Julius Caesar’s, they think it was Julius Caesar’s father-in-law, uh, Capus Pizo. That had a villa and he had a massive library, and these books were destroyed when after the eruption, but they were sort of, they, they were scrolls that are burnt on the outside but [00:19:00] survive on the inside, but you can’t open them up without destroying them.

But what they’ve been doing in the last couple of years is this non-destructive laser scanning that can go through them and read. Page by page, the writing that’s on there, and then use computers and AI to reconstruct it. And, uh, we’re discovering these books that were in this library in 79 ce, it’s amazing.

It’s called The Valor of the Papyri. Look it up. It’s fascinating. But anyway, well listen to my podcast on, but so the g getting outta that, the Guggenheims Maya Guggenheim was a Swiss citizen of Ashkenazi Jewish. Ancestry arrived in the United States in 1847. Surname comes from the Alsation Village of Guggenheim.

He met a woman called Barbara Meyer, uh, who he married in the United States, and over the next few decades, they had 11 children and [00:20:00] descendants became known for. Operating businesses in the mining and and smelting sectors, Guggenheim Exploration. And they had a company called the American Smelting and Refining Company.

And then in 1882 with seven of his sons, he organized the M Guggenheim’s sons later reorganized as the Guggenheim Brothers. And in the early 20th century, they had one of the largest fortunes in the world. Uh, 1912, they organized the Chile Exploration Company Chix and bought the Chu Kata op, uh, open pit copper mine.

It’s now the largest open pit copper mine in terms of excavated volume in the world. But the story behind that is interesting. So an American engineer named Charles Bradley developed a method of processing low grade [00:21:00] oxidized copper oes. Guggenheim’s, uh, sort of got control of that process and following World War I.

They sold this all off, but before that, they sort of just went around and bought these like low grade copper mines in Chile and built it, built it up to be quite huge. Um, but then sold out of that and bought nitrate. Mines. They got into fertilizers and explosives after World War I. They sold, they sold the the copper mine to Anaconda Copper in 1923, which of course led me down a rabbit hole of blue Horseshoe Loves Ana cot steel.

It’s not Anaco steel. It’s Anaconda copper. Mm-hmm.

Tony: And there was a company listed on the Australian ASX called Anaconda Nickel for a while. [00:22:00]

Cameron: Right. I think we’ve made gags about that in the past. In 1924, they um, used the profits of the sale of the CCU Chu, Marta Copper mine to purchase Anglo Chilean nitrate and Railways Company Limited, which was a British business, bought a bunch of other things, amalgamated it all into this big nitrate corporation.

Um, and then in 1931, they partnered with the Chilean government to form ACH the Chile $375 million behemoth that controlled nearly the entire natural nitrate supply of the planet. Wow. They cornered the market for nitrates

Tony: fertilizer.

Cameron: Fertilizer and explosives. Yeah.

Tony: Mm-hmm.

Cameron: Which was, uh, you know, a [00:23:00] big deal.

Unfortunately for them, they underestimated the Germans. Never underestimate the Germans th. While they were digging nitrate out of the ground, German chemists, Abel Bosch, figured out how to create it directly out of the air and create synthetic nitrates, and then there was a price war. The synthetic nitrates were becoming cheaper and easy to produce.

The monopoly that they had of digging it outta the ground, uh, wasn’t as valuable as it once was. Great depression hit in 1929. Global demand for fertilizer collapsed. The Guggenheims were left holding a mountain of debt. They ran the company separately until 1950, until they merged them into the Anglo Ro Nitrate Corporation Limited, and then Salvador Linde took over Chile and nationalized the nitrate industry.

[00:24:00] They were forced to sell all of their assets to the government in 1971. They, the government paid them $7,885,590. Which resulted in a $25,912,956 loss for the company. Hmm. The, uh, historian Irwin Unger, who wrote a bio on the family, summed up the family’s nitrate operation saying, all told the nitrate venture had been a disappointment and it diminished the family’s role in the world of business.

The Guggenheims soon ceased to be industrial movers and shakers, and became known to the public, primarily as patrons of the arts and sciences. So there you go. Go.

So,

Tony: and the link with neighbors, drawing ears,

Cameron: getting to that.

Tony: Oh, okay.

Cameron: Yeah.

Tony: And then the earth cooled and

Cameron: dinosaurs.

Tony: Dinosaurs, runway.

Cameron: Come on, Guggenheims. You learn something. [00:25:00]

Tony: So.

Cameron: After they got outta the nitrate business, they reorganized what was left into a new company. The Anglo Company Limited, incorporated in The Bahamas throughout the seventies.

Uh, they acquired a number of companies including nabs Drilling.

Tony: Is this, is this related to like, there’s an Anglo company now, a big mining company around the world? Which in Australia has Anglo Gold shanty and various other companies?

Cameron: I don’t think so because, um, Anglo went into work in oil exploration then the 1980s oil GL.

Scan and Anglo went into bankruptcy.

Tony: Oh, okay.

Cameron: Came out of chapter 11 in 1988. Then it purchased a Canadian Drilling and Supply company, Westburn Group, and then changed its name to Neighbors Industries Incorporated in 1989. So I think anything that it owns is probably under the [00:26:00] neighbor’s, uh, parent now.

But I mean, it may still have businesses called. Anglo, I didn’t go into that. I thought they were

Tony: South African based. The Anglo mines right? I could be wrong.

Cameron: So they started acquiring drilling and drilling equipment companies. In 1991, a guy called Anthony Petrillo was hired, became deputy chairman, president and Chief operating Officer.

Previous to that, he’d been the managing director of the New York Office of Law Firm, baker and Mackenzie. And then 20 years later when the neighbor’s CEOU, Eugene Eisenberg stepped down, Patreo became the CEO, and he’s still the CEO today. So he’s been running the company as either president, chief operating officer, or CEO since 1991.

Tony: Wow.

Cameron: Hmm. Only owns about 3% of the company though. Which is, it’s surprising. Interesting.

Yeah.

Tony: Yeah.

Cameron: I mean, it’s a big [00:27:00] company, uh, and it has a lot of institutional investors. Right. In 2016, they signed a contract with Saudi Aramco, the largest oil company in the world to form a joint venture called Sanad, S-A-N-A-D.

The Saudi Aramco Neighbors Drilling Company commenced operations in 2017. And that’s a big deal, but they’ve got a lot of, uh, a lot of their businesses tied up in that as we’ll. Get into when I break down the numbers in a minute. Institutional investors own about 75% of the company, and they’re basically a, a general contractor today in the oil patch.

They don’t own the oil, they just provide lots of rigs to get the oil outta the ground labor. Lot of high tech stuff. We’ve covered companies like this on the podcast over the last year or so. It’s a big [00:28:00] business. Um. We, we run the rig, we run the teams, you own the land with the oil, we just come in and get it up and running.

You can get up to speed quickly. You can shut it down quickly. Uh, you know, they, they can move their stuff around to other contracts. All that sort of stuff that we’ve talked about in the past. They got three main segments, the US and international drilling. This is the bread and butter of the business they operate.

A fleet of 158 rigs globally with a massive footprint in Saudi Arabia. About 79% of their revenue comes out of drilling 30% in the us, 49% international. They have something called Drilling Solutions, which is the high margin software and automation that helps them drill with fewer people. That’s about 16% of Rev.

And then something called RIG Technologies, which is the factory. They build and sell rig [00:29:00] components to themselves and to competitors. That’s about 5% of revenue. Uh, I was looking into why it’s cheap, dirty, dirty stories and risks. There’s always a dirty story involved in these American companies we’ve learnt over the last year or so.

Um, nothing really recent in their history. Uh, there was a really nasty sexual harassment case on a rig, uh, about. Decade ago, 2014, uh, of a, of a man who was like accused of being, uh, homosexual by his colleagues. And he ended, ended up so he,

Tony: he thought about neighbors the same way I thought about neighbors.

Cameron: They accused him of being married to Rock Hudson. Yeah. And he took him to court. It was a big deal actually, that. [00:30:00] I believe changed, um, some regulatory stuff in, I think it was in California, where it was a man that was getting sexually harassed by other men who were accusing him of being a homosexual.

Even though they knew full well he wasn’t. They’d met his girlfriend even before he started working there, but it was just, you know, you’re a fag and you’re gay, and all this kinda stuff. Constant harassment and photos of him. And it’s, I read the story on it was like sort of what they put down to a roughneck culture, but um, it blew up and I think there were regulatory changes around it.

I think before then, it was assumed by the courts that, um, only women could be sexually harassed by men in the workplace. Um, they’ve also been a serial diluter, a serial diluter. That’s a good, that’s a good one. A serial diluted. They’ve diluted [00:31:00] their, um, what do you call it? Their, their

Tony: shareholders.

Cameron: Shareholders, yeah. Mm-hmm. Uh, I was thinking of something else. Um, share count grew by 52.8% in the past year alone. But it’s an interesting story to this, which I’ll get into in a second. It was regarding an acquisition. The other, only other thing I could come up with about them that, uh, is sort of high risk is that 30% of their 2025 revenue came from Saudi Aramco.

So if there’s any problem with that, uh, it could be a big chunk of their revenue. But Saudis are doing okay from what I heard. Yeah,

Tony: they seem pretty switched on, don’t they? Especially in the old space.

Cameron: Yeah, I hear they may have had something to do with the Iran strike. I heard a, I read it in the New York Times, Tony.

That’s all I’m saying. Okay. [00:32:00] I saw some suggestion that there may have been a late night phone call to Donald Trump’s golden toilet from an unnamed prince of the realm. It’s a,

Tony: it’s a funny old world we live in, isn’t it really?

Cameron: Yeah. So, um, and the acquisition I mentioned last year, about a year ago, March, 2025, they bought a company called Parker Wellbore for $180 million or thereabouts.

They’re a, they’re a leading rental provider for down hole tubulars, Tony.

Tony: Okay.

Cameron: You ever had a, I had a down hole. Tubular once had to go see a doctor. He said, look, it’s a day procedure. Don’t worry about it. Down hole. Tubulars are cylindrical steel pipes used in oil and gas wells. What? They [00:33:00] sound like tubes that go down.

Holes down hole. Yeah,

Tony: exactly.

Cameron: Uh, but they didn’t have the cash to buy Parker. Well, Bo, so. They issued equity for it. Um, and the CEO Tony Petre is basically pitching this as a master stroke of financial engineering. So what he did was he issued 4.8 million new common shares directly to Parker’s stockholders to take over the company.

And they, he had about 9 million shares outstanding at the time. So that added sort of 53% roughly to the, um, shares outstanding. But then he immediately turned around and sold one of their divisions called Quail Tools [00:34:00] for $625 million.

So he bought it for $180 million worth of shares.

Tony: Oh, that’s, that is a good deal.

Cameron: Sold Quail Tools for $625 million.

Tony: That’s a great deal.

Cameron: Makes you wonder why the people at Parker Wellbore didn’t sell Quail tools for $625 million. I didn’t get into that, but he used that $625 million to pay down their debt.

So he said we effectively sold equity to fund the Parker acquisition at approximately $130 per share. Very significant premium to the then current stock price. So basically using. Yeah, you could just basically print free money by printing shares, buy it, and then pay down $554 million in debt. So it sucks.

If you were a shareholder, you got diluted. Yep. But, [00:35:00] um, they paid down the debt and they’re gonna save roughly 40 to $50 million a year in interest payments.

Tony: Mm-hmm.

Cameron: So it,

Tony: so he could have issued shares to his own shareholders and then paid down the debt. That would also have worked.

Cameron: Yeah. But then he wouldn’t have had the Parker Wellbore down hole tubular business.

Tony: True.

Cameron: To show for it.

Tony: And he couldn’t. Yeah. And he couldn’t have sold quail tools. But with all that round Robin, same result.

Cameron: Hey, listen, I’m not gonna argue with Tony Petrillo on how much of a master stroke of financial engineering this was. Tony. Looks pretty impressive on paper.

Tony: Sounds good.

Cameron: Anyway, their market cap’s about 1.14 billion, but they’ve, they’re carrying debt of 1.55 billion, still down from over like 2 billion, uh, until they did this deal.

So balance sheet is not exactly [00:36:00] pristine, but they’ve also pushed their next major maturity out to 2029. So they’ve got a little bit of runway before they need to worry about it. Um. That’s basically the basics of the business. It’s, it’s kind of a bit of a cigar butt turnaround here, but they’ve, they’ve sort of stripped a lot of stuff back over the years.

They’ve really just got this drilling business, but if I get through the financials on it, uh, their EPS is $17, but it’s not really, um, it’s really more like, uh, negative. Something because I think that’s all from the sale of the business. Extraordinary items. Okay. They got from flipping quail tools,

Tony: right?

Cameron: Um, the t the T-T-M-E-P-S is actually sort of minus $5 and analysts are calling for a minus $4 60 EP EPS for [00:37:00] next year. So, but they’re investing all of that money then not

Tony: paying down debt. Well,

Cameron: they paid down debt from what they, they sold it?

Tony: Yep.

Cameron: Yeah, but they kept some,

Tony: oh, okay.

Cameron: They sold 600, they sold it for 650 million and they paid down $554 million in debt and used the rest to stick into the business.

Right. A hundred million roughly. They’re losing money, but they’re investing it in buying stuff basically. Um. Their op price to operating cash flow is 1.65.

Tony: Mm-hmm.

Cameron: So you are paying $1.14 billion for a company that generated 693 million in operating cash flow over the last year. A lot of raw cash generating power in these oil rigs that they’ve got.

Yeah. In Saudi Arabia, among other places. Mm-hmm. [00:38:00] So it’s got a price to book of 1.93. The book Value Growth CGA is 17% over the last three years. So they’re aggressively building the asset base through acquisitions, um, that really. Isn’t showing up in the, the valuation of the business yet. The Petrovsky F score is a seven out of nine, which is very good.

The stock rank in stock, EDIA is a 94, so that’s very, very strong. The free cash flow though, if you look at it, is despite the operating cash flow of 693 million, the free cash flow is negative 22.6 million. ’cause they’re pouring every cent that they have back into CapEx, probably these rigs that they’re throwing up in Saudi Arabia.

Um, so they’re, they’re spending everything that they’ve got and then some having to buy stuff, sell [00:39:00] stuff, uh, to, to keep the. Plates spinning. It’s, um, sort of an asset rich zombie. Yeah. Looks like it’s losing money, but it’s got a lot of assets and is generating a lot of cash flow. It’s just spending more than it’s, uh, making.

Tony: And, and the risk is, um, with any drilling company is that, uh, if there’s a downturn in the oil market, then they’re stranded holding all these, All Ords. They can’t. Um, rent out.

Cameron: Well, thank goodness they have Benjamin Netanyahu on speed dial

because I think the oil price is gonna be doing okay for a little

Tony: while. Yeah. Yep. That’s, that’s how, that’s how large US companies risk mitigate, isn’t it?

Cameron: Let’s go blow something up. Um. No, I have no, I have no evidence to back up the fact that they have Bibi Netanyahu on speed dial. But, uh, the, the current [00:40:00] goings on in the Middle East are probably good for the oil prize Okay.

For the foreseeable future. So that’s basically the neighbor’s industry’s story. Tony from the Guggenheim’s through to Saudi Arabia, Jewish mining Company through to building oil wells for the. Arabs, uh, they, uh, let me go through the scoring price to operating cash flow. As I said, 1.65, quality rank and stock Edia 58.

Didn’t score ’em for that. We only score ’em if they’re over 60, but the, they got a score for the stock rank. Above 90 F scores above 4.5 scored ’em for that. The price is higher than both our IV one and our IV two. It’s also higher than book and book plus 30 doesn’t have a new upturn, uh, book value growth is positive.

As I said, the PE [00:41:00] is nothing ’cause they’re not making any money. Um, so the yield is, um, nothing. The price their IV is, uh, IV number two is not better than their IV is not better than, uh, double the share price. IV number two. Um, so when I scored ’em on the QAV score and they got a score of seven outta 10 70% and a QAV QAV score though of 0.43 due primarily to their,

Tony: mm-hmm.

Cameron: Very, very attractive price to operating cash flow. So, um, you know, all minor, all, all minor rig business. Tony. That’s really it. That’s all I got for these guys. Uh, not owned by Jim Neighbors. They’re not married to, uh, rock Hudson. Rock

Tony: Hudson.

Cameron: Yeah. But, um,

Tony: interesting isn’t it? I mean, it’s, it’s cheap. That’s the biggest thing going for it.

Throwing off lots of operating cash.

Cameron: Yeah.

Tony: [00:42:00] But heavily indebted. Um. In an industry which will be doing good for a while, but whether it continues doing good long term, who knows?

Cameron: Mm.

Tony: Um, I mean, the Saudis have been for years trying to develop other industries for the day when oil is in decline, so that they could be 10 years away or 20 years away.

No one knows or may never come.

Cameron: Mm.

Tony: Um, so yeah, there’s a, there’s a fair bit of risk with this company, heavily indebted, renting out all rigs, which one day may not be needed. Um, but until then, running as fast as it can to fix up its balance sheet and become profitable again.

Cameron: Mm. And we don’t forecast the future.

Tony: Unfortunately not. Yeah. Yeah.

Cameron: So I added them to our QAV light. Portfolio yesterday and uh, we will see how they go. [00:43:00] Uh,

Tony: well, we’re worse at forecasting the future than maga my man is, put it that way.

Cameron: So in our last show we talked about maga, my man and the poly market scandal. Um, there was, uh, somebody. Who was making lots of bets on poly market about when Israel in the United States would attack Iran and when the Ayatollah would be killed and managed somehow to get them all right and made a huge profit.

Tony: They should open a market as as to who the real identity of Mabb my, my man is.

Cameron: Oh, I’m sure that’s on there. I’m sure it is.

Tony: Yeah.

Cameron: I did see, and some we talked about the last, somebody pointed out that Donald Trump Jr. Is on the board of Poly Market and has invested many, many millions of dollars into it and, uh, may or may not.

Have an account under a pseudonym on their trading on information. But, uh, apparently that’s all [00:44:00] legal and above board in the

Tony: United States. We should, as we know, well, we should like put up a honey trap and set up a market for who mag my, my man really is. And when that person bets the house, we go, aha.

Gotcha.

Cameron: Uh, by the way, speaking of the light portfolio. We’ve only been running it for, uh, I’ve been running it for a couple of months. Let’s see it started, um, this one December, late 22nd of December, but bought the first shares in it. It’s down about two and a half percent versus the s and p, which is basically neutral in that period of time.

But some of the stocks, uh, I talked about having to sell VLRS, but, uh, cord Energy, which, uh, we only added. A couple of weeks ago, uh, end of January, we added cord energy. They’re, uh, independent exploration and production company. It’s up, [00:45:00] uh, 18.6%. Since we added at the end of January. As I said, SSP is up 11% was up 20 now up 11.

The rest of them are just trundling along. Tusk, uh, mammoth Energy Services we talked about, it’s up 1%. Um, eco Petrol is up. Uh, no, it’s down 1% and Shinhan Financial is down 6%. SHG, the other Korean one that we talked about. Neighbor Industries has actually dropped 1.5% after I added it yesterday. So, uh, if you haven’t already added it to your portfolio, maybe just watch and see what happens.

Wait until it turns around again, which it may or may not do. And if it doesn’t, we will sell it and replace it with something else.

Tony: Correct.

Cameron: But it, as we know, it does take time for these portfolios to,

Tony: it does

Cameron: establish themselves.

Tony: Yeah, it does sometimes. We get out [00:46:00] performance, but you just have to wait for it to ramp up, don’t you?

And as, as, uh, even Warren Buffet says, you know, 60 out of 10 in terms of stock picks and getting them right is a good score.

Cameron: Yeah.

Tony: So we’re gonna, we might churn for a bit until something takes off.

Cameron: Yeah. Well, I, what I found over the six or seven years that I’ve been doing it with you is that when we start a new portfolio, there’s moving pieces.

It’s like Mo um,

Tony: mm-hmm.

Cameron: What do you call it? The chairs game. The kids play. Um, d dancing chairs, moving chairs.

Tony: Pass the parcel.

Cameron: No, not that one. The one where you have to get off a chair and go sit on another chair. Whatever that should, whatever that kid’s game is obviously a long time since I hosted a kid’s birthday party.

Um, you know, we, we have to move the pieces around. We’ll buy, we’ll buy a couple of companies and they won’t work out and they’ll breach one of our cell triggers and then we’ll. By the next one before you end up [00:47:00] with a good, stable portfolio of stocks. Correct. We, we get rid of the duds as they fail and just keep adding companies until we have a portfolio of mostly winners.

Then you end up with your 15 to 20 winners and they generally do well. You’ll have to sell one or occasionally every now and again, but once you get a portfolio of 15 to 20 good companies that they just get a lot of. Wind in the sails and keep running for a very long time.

Tony: It is something we’ve seen time and time again, isn’t it?

Whenever we start a new light portfolio or dummy portfolio, it just takes a bit of time. Even with the US one, I remember it was, um, underperforming for its initial stages.

Cameron: No, on the contrary, it, it. It, it, it kind of did. Okay. So I started the main US one, as I said, in September 23. It sort of, it tracked along [00:48:00] for three or four months.

Then it dipped down a little bit for a while, for a couple of months. Mm-hmm. Then it tracked a lot. It got back to neutral for a couple of months. Then by July, 2024. Mm-hmm. So that’s, uh, what, eight or nine months? It went nine months bonkers.

Tony: Mm-hmm.

Cameron: By November, 2024, it was doing triple market. It was up 90% when the market was up 30%.

Then Trump got elected and it gave up a lot of its returns. Um, by November last year, it was back to basically neutral. To the s and p 500, up 50, up 52%, but tracking the s and p and then it’s doubled since then in the last three months, four months. So yeah, it’s gone in, it’s gone. It’s had a couple of cycles just in the CO two and a half years we’ve been running it.

It’s, it’s [00:49:00] crazy. But um, yeah. Any who? There you go. We just follow the system, follow the rules. And for new people listening to this, you know, the, as I was saying to one of our new members when I had a call with her this morning, um, the basic. Thesis behind QAV O is explained as we look for companies that are performing well, generating cash, seem to be well run, and we buy them when we can get ’em at a discount.

Correct. And then we hold ’em for as long as we possibly can and wait for the market to catch up. We have rules in place that’ll tell us if we have to sell ’em, but they’re very, very strict rules and there’s only a couple of ’em. And generally we just try and hold ’em as long as we can. Wait for the market to agree with us that it was undervalued in the first place.

And, um, more often than not, that works out.

Tony: Yeah. Or the company’s taken over and somebody else sees value in it. All those kinds of things happen too, don’t they?

Cameron: Yeah. [00:50:00] Yeah. If you, if you find a, a well run business and you can buy cheap. More often than not, that turns out to be a good investment. It’s not rocket science, it’s not quantum mechanics is what I always say to people, right?

Tony: Yeah, exactly. You don’t need to know the ins and outs of the drilling industry in Saudi Arabia to be able to do this.

Cameron: Yeah. Is it making money and is it sheep?

Tony: Hmm.

Cameron: And that’s pretty much 90% of what you need to know.

Tony: It’s a bit like buying cars, isn’t it? Right. Is it? Can I drive this on the road? Is it a good price?

Is it reliable? Okay, I’m gonna buy it and drive it until I have to sell it.

Cameron: Yeah.

Tony: Yeah.

Cameron: But, but as I said to this new member this morning, like, I think to give you your due, your stroke of genius was figuring out how to. Take something that’s relatively amorphous for most of us, like value inve or vesting, let alone value investing [00:51:00] and reducing it down to a relatively simple algorithm.

Tony: A checklist.

Cameron: Yeah, a checklist, yeah. Which says, look at these 20 things and score. And if it has a good score, buy it.

Tony: Yep.

Cameron: Which

Tony: no, exactly,

Cameron: which is Mabb makes it doable for those of us. Yeah. That don’t have your head for numbers or math or, or whatever it is that makes you weird. Um,

thank

Tony: you. I think

Cameron: that’s a compliment.

As I said to Maria, a new member this morning, I said, you know, Tony’s a nerd and lucky for us, he. Took his nerdiness and turned it into something that we can all use. The Einstein of Value Investing. That’s what I like to call E. This is your e QAV is your e equals mc squared.

Tony: Right. I don’t know what to say about that.

I, I don’t think it is, but anyway, it works. [00:52:00]

Cameron: It does work. Yeah.

Tony: So does the more of a Chevrolet. More of the Chevrolet of investing. It’s, it’s, you know,

Cameron: just works

Tony: paired back and it works. You can drive it every day. Yeah. Don’t have to think about it. Get you the work, get you the way.

Cameron: No, no, no, no,

Tony: no. You,

Cameron: you, you did, you did good tk.

You did good. Alright, well that’s the show. Thank you, tk. You can go play golf. Thanks.

Tony: I’m

m.