Great stuff Ben. Consider also tracking (scrap value or value of fleet in 2nd hand market). Data is out there. Take houses , for example, you can say that it costs a lot more to build the new home and so you are getting a steal, but the bank is really only going to look at what the can sell it for in the event of foreclosure (bankruptcy). All the new build replacemnt cost tells you is that you aren’t going to get competition from a company coming in with a brand new fleet, but it doesn t necessarily mean that’s what your fleet is worth. Your company is worth what you can sell it for (thus 2nd hand or scrap prices) , or the sum of the future cash flows from business. New build parity day rate is relevant to track though—until the day rates hit that hurdle, you won’t be seeing added supply/new build competition, and you can conclude if demand increase the day rate will increase. Not sure how current day rates compare with new build parity, but would be useful to know. Appreciate your excellent work and thoughts!
You’re correct of course which is why new build is just a starting point. If we know the boards and financiers for new builds need IRR of 15% before they’ll underwrite new builds over buy backs then you new build becomes your North Star for day rates needed which then gives you estimates of revenues and finally free cash flows.
Thanks for your update on youtube the other day. I'm curious what you think of the warrants? I was buying them around $11 but now not so sure if it's the best play.
Great stuff Ben. Consider also tracking (scrap value or value of fleet in 2nd hand market). Data is out there. Take houses , for example, you can say that it costs a lot more to build the new home and so you are getting a steal, but the bank is really only going to look at what the can sell it for in the event of foreclosure (bankruptcy). All the new build replacemnt cost tells you is that you aren’t going to get competition from a company coming in with a brand new fleet, but it doesn t necessarily mean that’s what your fleet is worth. Your company is worth what you can sell it for (thus 2nd hand or scrap prices) , or the sum of the future cash flows from business. New build parity day rate is relevant to track though—until the day rates hit that hurdle, you won’t be seeing added supply/new build competition, and you can conclude if demand increase the day rate will increase. Not sure how current day rates compare with new build parity, but would be useful to know. Appreciate your excellent work and thoughts!
Thanks Eric.
You’re correct of course which is why new build is just a starting point. If we know the boards and financiers for new builds need IRR of 15% before they’ll underwrite new builds over buy backs then you new build becomes your North Star for day rates needed which then gives you estimates of revenues and finally free cash flows.
Cheers
Thanks for your update on youtube the other day. I'm curious what you think of the warrants? I was buying them around $11 but now not so sure if it's the best play.
Thank you.
I think there’s still value in them. I don’t own (yet) as I have a ton of equity exposure. I’ll probably end up weighting a small percentage