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Tidewater Inc. (TDW): Why Third Avenue Management Likes It

Third Avenue Management is bullish on Tidewater Inc. (NYSE:TDW), a $560-million market cap provider of offshore service vessels and marine support services, based in New Orleans, Louisiana. In its Q4 Small Cap Investor Letter, the fund shared its thesis on Tidewater, Aspen Insurance Holdings, Five Point Holdings, and Carter Bank and Trust. In this article, we’re going to take a look at Third Avenue’s stock commentary about Tidewater, which is struggling due to a weak demand from offshore drillers.

Here is what Third Avenue said:

Tidewater is a special situation. It was recommended to us by the Value Team who outlined their thesis in the 9/30/17 letter. It is an oil and gas service company focused on offshore service vehicles (OSVs).Given the carnage in the energy sector over the past 3 years, it’s a fertile hunting ground for enterprising, deep-value investors.

Unfortunately, most energy companies are poorly capitalized which reduces their appeal to us. Tidewater went through a pre-packaged bankruptcy in early 2017 and emerged with a net cash balance sheet. The Company suffers from the stigma of being a post-bankruptcy company, but this stigma created an opportunity.

Post-bankruptcy, not only is Tidewater a net cash company, but it is trading at a discount to our estimate of liquidation value and stated book value. Book value is a reliable metric due to fresh start accounting. During the bankruptcy process, book value is restated to reflect current market values. Current market prices are depressed in our estimation given the poor industry dynamics with day rates and utilization at historic lows If the industry remains depressed, many assets will need to be scrapped as owners can no longer afford to maintain them, setting up a robust rebound as oil and gas markets recover. We cannot predict the timing of a cycle up turn, but we are comfortable investing in a net cash company with strong assets. Management visited our offices in November and stressed their determination to manage costs aggressively to protect their pristine balance sheet.

Tidewater Inc. (NYSE:TDW) owns and operates a fleet of vessels to support the offshore energy exploration and production activities in more than 60 countries. It operates in Americas, Asia/Pacific, Middle East/North Africa and Sub-Saharan Africa/Europe.

For the period from August 1 through September 30, Tidewater reported a loss of $15.7 million, or $0.81 per share, versus a loss of $178.5 million, or $3.79 per share, for the same period of 2016. Revenues were $74.3 million, versus $143.7 million in 2016.

Meanwhile, Tidewater isn’t very popular among the hedge funds covered by Insider Monkey. As of the end of September, only six funds in our database were holding TDW in their portfolios.

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