Tuesday, July 16, 2013

ETF Weighs Anchor with Seacor

Our countdown of the top ten holdings of the exchange traded fund Power Shares S&P Smallcap Energy (PSCE: Nasdaq) has reached number five  -  Seacor Holdings.  The company operates a fleet of supply vessels to deliver cargo and personnel to off-shore wind, oil and gas installations.  Seacor also handles anchors and mooring equipment and support services to off-shore construction sites.  The company provides transportation, fire and emergency response services with a fleet of helicopters. Inland river shipping and transportation services represent a third business segment.

Seacor earned $2.5 million in net income on $1.6 billion in revenue in the last twelve months.  Cash flow from operations during this period was $196.8 million.  The company is habitually profitable and it operations generate a fair amount of cash flow each year.  The comfortable cash flow has apparently given management the confidence to leverage up the balance sheet.  The debt-to-equity ratio is 0.50.  Interest burden is covered 6.6 times by EBITDA (earnings before interest depreciation and amortization).

Seacor’s shares trade under the symbol CKH on the NYSE.  The stock represents 6% of the ETF.  There are 20.0 million shares outstanding, of which only about 7% are held by insiders.  There is a substantial institutional interest in the stock, which is probably one reason on about 148,000 shares trade each day on average.  Investors might have expected that inclusion in an index and the various ETFs and funds based on that index might pump up trading volume.  In the case of PSCE, 7% of the $27 million fund value is devoted to CKH.  That represents about $1.9 million in value or 21,990 shares at the current CKH price level. 

Another important takeaway from a volume perspective is the comparison of trading volume in the ETF and its various constituent holdings.  PSCE trades a bit more than 8,000 shares a day.  This is substantially less than the trading volume in any of the fund holdings we have looked at far.  Thus in tapping exposure to the energy market through this ETF, investors are giving up liquidity they might have with direct positions in its constituents.

Seacor has a limited following on the sell-side.  Only two analysts have published estimates for the company.  Thus it is not surprising that Seacor has failed to meet this ‘consensus of two’ in any of the last four quarters.  That does not bode well for the company given how many investors never look beyond the quarterly earnings estimates and whether there has been a ‘miss.’  What is more, the two analysts have published limited expectations for price performance, with price targets of $70 and $88, respectively.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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