market folly

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is David Neuhauser of Livermore Partners who pitched Pacific Rubiales Energy (TSE:PRE) and talked about Occidental Petroleum (OXY) and Zargon (TSE:ZAR).


David Neuhauser's Value Investing Congress Presentation

•    Based Chicago – energy, financials, industrials focus.

•    Pacific Rubiales Energy (TSE:PRE) – Knows the Management team well.
•    Became attractive in the 1st quarter – took a large position or 10%. It’s been up 40% since the last couple weeks.
•    How do you extract value? Do the work – can’t simply say this is a cheap company and here is our time frame. Need to be proactive. 
•    One view - Management teams have been asleep at the wheel for a long time. Many are promotional. Focus on the downside. Worked for Leon Greenblatt out of school – focused on risk arb. and also bought big stakes in thrifts and filed 13Ds.
•    Livermore uses their vast networks to find opportunities and learn about businesses. Used their PE relationships like Wilbur Ross and Riverstone Holdings to help provide a level of conviction, etc. Further, they can introduce their companies to private equity funds, which is a benefit for both sides.
•    Some ideas they are focused on today – volt information sciences – unlisted $170MM market cap – 40% owned by the management team. Had to write a letter to the board. Had an accounting restatement in the past. Catalyst in relisting shares – operating margins to grow. Trades at $8 – TBV is $10, IV $15 - $20. Pressure the management team to create value.


•    Occidental Petroleum (OXY) – special situation 1 ½ ago. Break-up value is higher. Chairman tried to reinvigorate himself and take over the CEO spot from an excellent CEO. Sent a letter and the Chairman exited. Now OXY is spinning off assets.


•    Zargon (TSE:ZAR) – small energy company focused on exploitation - not trying to find oil, but use techniques to further extract oil.
•    Street didn’t like the name. Pressed management for a buyback which is in place. CEO owns 5%. Yield is 9%,
•    Met with management to hit achievable production targets and a sustainable dividend. Trades around $8.
•    New project 400 bpd coming online this year.
•    Heavy CapEx spend now behind them.
•    Should be viewed as a low-decline stable oil company.
•    Oil companies need low-decline supply.
•    Look at NAV on 2P reserves. NAV around ~$12 per share.
•    EV/EBITDA – in line with comps, would be worth $13 per share.
•    Also looking at Talisman Energy – working with Icahn’s team to find every avenue to unlock value. They do have a strong management.
•    Competitive advantage – bring PE guys in.

Be sure to check out the rest of the Value Investing Congress presentations.