Arnold Van Den Berg is the founder of Austin-based Century Management. The company was founded in 1974 and currently has asset under management in excess of $2 billion. Century Management has a value based investing philosophy and it is therefore interesting to look at the company’s new stock picks. In this article, I will look at Arnold Van Den Berg’s two new buys from the oil & gas sector.
Atwood Oceanics (ATW, Financial)
Arnold Van Den Berg (Trades, Portfolio) added Atwood Oceanics in his portfolio by buying 290,880 shares or 1.3% of the portfolio as of June 2014.
The company is an offshore drilling contractor, is engaged in the drilling and completion of exploratory and developmental oil and gas wells worldwide. As of June 2014, the company had a fleet of 14 ultra deep-water and high-specification jack-up rigs.
The company has 98% days contracted for 2014, 80% contracted for 2015 and 49% contracted for 2016 giving sound revenue visibility. Another major positive about the company is that it has an industry leading net income margin of 32% as compared to 31% for Seadrill (SDRL, Financial) and 28% for Ensco (ESV, Financial).
In terms of valuation, Atwood Oceanic is trading at an EV/EBITDA of 8.53 as compared to 12.12 for Seadrill and 10.29 for Ocean Rig (ORIG, Financial). The stock is certainly a value buy. Atwood Oceanics is also undervalued from a price to Graham number perspective, the stock is undervalued. All these metrics suggest that Atwood Oceanics is a perfect value buy.
GuruFocus rated Atwood Oceanics the business predictability rank of 3-star.
Arnold Van Den Berg (Trades, Portfolio) added Ensco in his portfolio by buying 275,530 shares or 1.3% of the portfolio as of June 2014.
Ensco provides offshore contract drilling services to the oil and gas industry worldwide. The company operates through three segments: Floaters, Jack-ups, and Other. The company owns and operates an offshore drilling rig fleet of approximately 74 rigs, including 10 drill ships, 13 dynamically positioned semisubmersible rigs, 6 moored semisubmersible rigs, and 45 jack-up rigs.
As of March 2014, Ensco had a strong contract backlog of $10 billion and this provides the company with a strong revenue visibility. A robust cash flow visibility also implies sustained dividends and Enesco’s dividend yield should remain stable at 5.4% or trend higher from current levels.
On the valuation front, Ensco seems undervalued as compared to peers and is therefore a value buy. Ensco is currently trading at an EV/EBITDA of 7.23 and this is cheap as compared to Seadrill, which is trading at an EV/EBITDA of 12.12 and Ocean Rig, trading at an EV/EBITDA of 10.29.
Ensco is also trading at a discount as compared to peers in terms of price to Graham number (0.7).
Therefore, the stock looks attractive on an overall basis and is certainly a value buy for Arnold Van Den Berg (Trades, Portfolio).
GuruFocus rated Ensco the business predictability rank of 1-star.
In conclusion, Arnold Van Den Berg (Trades, Portfolio)’s latest stock picks in the oil & gas drilling sector are undervalued and both these stock have an upside potential from a valuation perspective.
Investors can check Arnold Van Den Berg (Trades, Portfolio) entire second quarter portfolio here.
