This isn’t my first go around with High Arctic. See here.
This idea is quite simple. A number of years ago High Arctic was an early mover in PNG. They built strong industry connections and have benefited from having above average utilization and profitability for a company in their industry. They have used the cash that has been built up to purchase assets in distress. Here is a brief summary of activity since the downturn in 2016
- In 2016, they purchased assets on the cheap from Tervita for $42.8mil. This is the Concord Well Servicing assets.
- They also invested in their rental fleet in 2016 to the tune of about $10mil.
- In 2017, they entered into an agreement with a major PNG customer for ownership of some rigs in PNG. They will operate the rigs under a 3 year exclusive agreement. This will give them better revenue visibility for 2 of the rigs in PNG.
- In 2018 they acquired the shares of Power Energy Holdings (Powerstroke assets).
- Bought Saddle Well Services in August 2018, increasing exposure to southeast Alberta.
- In April 2019, they announced that they have purchased snubbing assets from Precision Drilling for $8.25mil.
As you can see this is a much larger company than it was a few years ago. Their discipline with the balance sheet has allowed them to purchase assets and grow their customer base in the midst of a downturn. The company has done everything in their control to survive and be a bigger company once activity returns. On the Q1 2019 call, they indicated that activity in Q2 was better than expected.
Since this post was short, here are some charts.
Similar to my other energy ideas. This is really a bet on business activity returning coupled with investor sentiment. There is also a 5.8% dividend yield as well. Current valuation is about 4x EV/EBITDA and I am betting that the EBITDA is temporarily depressed.
Disclosure: the author is long shares of HWO.to at time of writing.