Seacor Marine: Another Chance To Ride The OSV Wave

A Discount To Big Brother Tidewater With The Inflection On The Horizon

Summary

• Seacor Marine trades at a discount to Tidewater, but both trade at a significant discount to new build economics.

• Utilization rates for Seacor have been ugly so far in 2024, but I think that will improve significantly over the next several quarters.

• Average day rates for Seacor’s fleet are up 29% for the first half of 2024 vs. 2023.

• The average contract length is one year, and as contracts reprice the business results should improve materially.

• Shares are down almost 25% in the last month with the broad market selloff, providing an attractive entry point for investors looking for exposure to OSVs.

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After some recent sales, I have been adding to a couple positions in the portfolio. One that I find very attractive after the recent selloff is Seacor Marine SMHI 0.00%↑, an OSV operator with a market cap of $308M. They were one of the few companies in the sector that didn’t go bankrupt and reorganize after the last cycle, and I think investors can get significant torque to a continued bull cycle in offshore service vessels with Seacor. Originally I was content to stick with Tidewater TDW 0.00%↑ for exposure to the OSV space, but I had to take a closer look after a couple investors (s/o to

Trader Ferg

) pointed out the relative discount and some of the accounting nuances between the two companies.

The inflection in OSV day rates is showing up in the results of both companies, but I think shares of Seacor have some potential to play catch up to Tidewater over the next couple years. One of the reasons I think Seacor is more attractive today is the wider discount to replacement cost. The fleets are a bit different, and Tidewater has an advantage on fleet size (213 vessels vs. Seacor’s 56), while Seacor has advantage on average age of the fleet (9.9 years vs. Tidewater’s 12.1 years). With that said, I figured some rough back of the napkin math would be helpful. If you take the enterprise value (market cap + debt - cash) and divide by the number of ships in each fleet, it shows that both are trading at a wide discount to replacement cost. Tidewater currently trades for $22.3M per boat ($4.76B / 213 boats), while Seacor is even cheaper at $10.2M per boat ($574M / 56 boats). This is where the margin of safety is for investors.

OSV New Build Economics (tdw.com)

If you take Tidewater’s management at their word on new build costs of $65M (it’s at least in the right ballpark compared to other estimates I have seen), then the bull cycle for OSVs still has years to play out. The order book and portion of the fleet that is dry stacked (aka inactive) right now confirm that thesis, and show that supply will continue to be constricted. That means higher day rates over time, and I wouldn’t be surprised to see shares of both companies at much higher prices in a couple years than they are today, which is why I’m not in any hurry to sell Tidewater. Basically, I think Seacor gives investors another chance to ride the same wave that Tidewater has been on over the last couple years, and I think it’s the more attractive option of the two for investors adding OSV exposure today.

Seacor’s Fleet: Utilization, Rates & Contracts