New Personal Buy

limit buy order brings a falling knife to my personal portfolio

By Travis Johnson, Stock Gumshoe, October 9, 2013

I’ve had some lowball limit orders in for a few companies that I find interesting, and one of them just hit thanks to some bad news from that company so I picked up a few shares.

The company is TGS-Nopec (TGS in Oslo, TGSGY for the ADR on the pink sheets), a Norwegian-American oil services firm that is a little bit similar to Pulse Seismic (PSD in Toronto, PLSDF on the pink sheets) but on a much larger and more geographically diverse scale, with a similar business model (headquarters are in Norway, but most employees are in Texas). They own a huge data library of seismic (and other relevant) data from around the world, and they sell it to explorers who are plotting their next drilling work. That part of the business is still going well, but the acquisition business is in a slowdown — partly due to competition, partly due to lagging enthusiasm (they say) for oil exploration. Their acquisition business is generally built on prefunding arrangements, where a customer will want data and agree to pay up front for some portion of the cost of acquiring the data in exchange for some kind of license of that data, and TGS will pay the rest and get to add the data to its library for other future potential customers. Lately the prefunding level has been falling well below the preferred level of about 50%, and TGS has said they’re scaling back and not taking on some of the riskier projects that are less economic for them. The stock fell about 15% this week after they announced the second lowering of their revenue forecast for the year, sort of a preannouncement that we should expect disappointing earnings when the quarterly report come out in two weeks.

My sense is that this is a solid company, and an inexpensive one that pays a very solid dividend and owns valuable data assets, but there is certainly substantial risk if oil exploration drops or the business model for seismic acquisition becomes less competitive and they’re unable to grow as investors have come to expect. They’re not really priced for growth, I’d argue, but investors got used to heady growth numbers from 2009-2012 and have been very disappointed with the last two quarters and this most recent pre-announcement of a weak quarter to be announced on October 23. I’ll have to dig into it ...

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