I am looking to generate some value investing ideas. In the past, I have had success buying equities where the underlying assets are trading at a substantial discount to replacement. Currently, my best idea along these lines are the offshore services companies (I am sure many are familiar with the pretty simple thesis). VAL trading for around $250,000,000/rig, and NE is trading for around $300,000,000/rig. The cost of building a new rig is around $5B over 5 years. The order books are also clean beyond 2024. Given I see most production growth coming offshore over the next 10 – 15 years, I believe these companies will reprice heavily and generate a lot of cash flow as they contract at higher and higher day rates.
Is anyone familiar with any other sectors where we see such a big discount to the cost of replacement?
Leave a Reply