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Summary: SDSD is a holding company set up by the Norwegian investor Oystein Spetalen to acquire oil supply vessels from distressed sellers in the North Sea at the bottom of the cycle. Spetalen has an outstanding record making these investments, selling near peak cycle, and returning all cash to shareholders. We think he will most likely sell SDSD for ~2x the current market cap in 1-2 years. The North Sea started recovering in early 2018, but this opportunity still exists because SDSD is overlooked: it has a ~$100mm market cap, trades ~$120k/day and is only covered by Norwegian sell-side. Even if the recovery takes longer than we expect, several Nordic peers will likely be forced sellers of vessels again. As the only player with significant net cash, SDSD would be poised to make more attractive buys. It therefore has limited downside but 2x upside.
Summary: The last five years has seen capital poured into the US shale sector, leading to explosive growth in oil and gas production. This report argues that shale producers are mostly destroying value regardless of commodity prices, because they are the marginal cost players in their industries. Even those operating in the lowest cost basin, the Appalachian basin, are not an exception to this. In fact, Appalachian gas producers may be exposed to the worst dynamics as they effectively compete against one another locally and the influx of capital has led to a large oversupply of gas in the region. Even if managers of shale producers realise their predicament, they are faced with the choice of either reducing value destructive investments and seeing the story of production growth fade back to reality, or continuing to invest and hoping in vain that the music never stops. They are thus drilling into oblivion and have no way out. A list of companies that are fundamentally losers or winners is presented at the end.
Summary: There has long been a stigma attached to investing in airline stocks. Yet a group of Low- Cost-Carriers (LCCs) have emerged in the European short-haul market over the last decade that have significant cost advantages over legacy High-Cost-Carriers (HCCs). These cost advantages are on fuel, crew, and maintenance, and stem from having more homogenous and modern fleets, weaker worker unions, profit-maximising cultures, and greater utilization. We think these sources of competitive advantage enable them to generate value and are largely durable. The greatest risk LCCs face is from being victims of their own success: overexpansion could push HCCs out of the market and result in much lower prices and profitability. However, we think it is more likely that the largest players will continue to behave smartly and nurture the market. While supernormal returns may shrink over time, LCCs will remain good businesses. We think that Wizz is the LCC with the greatest durable cost advantage and the cheapest stock, and see +178% equity upside when using a conservative valuation model. We think the market misprices Wizz because investors are overly focused on short-term pricing pressure and Brexit, are still de-stigmatizing LCCs, and are still getting to know the company post the IPO in 2015.