Tidewater (NYSE:TDW) has recently reported its fourth-quarter results, which are especially interesting to see amidst the current oil price crisis and the corresponding downside moves in many offshore names. The company reported revenues of $119 million and a net loss of $60 million. The main driver for the loss was an impairment of $32.5 million due to the decision to dispose of 46 lower-spec vessels in 2020. As per Tidewater’s annual report, it disposed of 38 vessels in 2018 and 40 vessels in 2019. The latest “wave” of vessel sales was booked as “assets held for sale” on the balance sheet and totals $39.2 million.
In the fourth quarter, the company has been able to achieve positive operating cash flow of $5.3 million. For the year, it reported negative operating cash flow of -$31.4 million. Utilization of active vessels increased to 81.4% in the fourth quarter from 80.4% in the third quarter, helping the company turn to positive cash flow.
Back in November 2019, Tidewater held a cash tender offer for its debt. As a result, its long-term debt position decreased from $419.9 million at the end of the third quarter to $279 million at the end of the fourth quarter. Not surprisingly, the company’s cash position also decreased from $359.3 million in the third quarter to $218.3 million in the fourth quarter.
Source: Tidewater annual report
In my opinion, Tidewater’s debt situation is not concerning. While the earnings numbers look bleak (a loss of -$142 million for the full year 2019, a slight improvement from a loss of -$172 million for the full year 2018), the cash flow situation is normal. Thanks to asset sales, Tidewater was able to offset capex in 2019 and even mitigate the negative operating cash flow. Now that the operating cash flow is heading in the right direction (and keeping in mind that $39.2 million of asset sales are possible), the company’s cash flow performance will likely be positive in 2020. At this point, Tidewater has absolutely no problems servicing its debt, which means that it will be able to refinance it if necessary in 2022.
In addition to the potential asset sales, the other potential source of cash (which the company has problems collecting) is the amount due from Sonatide ($89 million), a joint venture with Sonangol in Angola. The annual report stated that Sonangol intended to divest itself from the joint venture in 2020 as part of a broad privatization program. It remains to be seen whether the privatization effort can help Tidewater extract its money back from Angola. As per the report, Sonatide had approximately $49.2 million of cash on hand (including $8.9 million denominated in Angolan kwanzas) plus $8.8 million of net trade accounts receivable at the end of 2019. At this point, investors should not count on any quick decrease in the amount due from Sonatide, since this story has dragged on years and Sonatide has materially less cash than it owes to Tidewater.
Since Tidewater started with fresh start accounting following its bankruptcy in 2017, its balance sheet better reflects reality compared to the companies that have not gone through such a forced impairment process. Currently, the balance sheet carries about $1 billion of equity, while its market capitalization fluctuates around $500 million, a 0.5 price-to-book ratio. While I’m not a big fan of P/B, especially in the offshore space, I’d note that in this case it is worth watching due to all the impairments that have been done before (in addition to bankruptcy, asset sales also came with impairments).
At current levels, the market is projecting the worsening of the company’s financial situation, while in reality, the opposite happens - Tidewater looks ready to report positive cash flow in 2020. The company looks rather optimistic: “Market conditions around the world continue to improve. Our anticipated revenue for 2020 is similar to our total revenue for 2019, but with fewer ships as we continue to high-grade the active fleet. As of this call, we have $440 million of backlog for 2020, which is over 90% of the revenue we recorded for the prior year”.
In the short term, all potential positive developments will have zero impact on Tidewater shares if oil keeps falling due to coronavirus fears or if the market is disappointed with the results of the OPEC/non-OPEC meeting. From a fundamental point of view, the company is looking rather cheap at current levels, although it may get even cheaper if the broader market situation deteriorates further.
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