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| | The oil and petroleum shipping industry is a capital intensive industry that has suffered since the economic downturn with low daily rates. Before the downturn, the companies were expanding by issuing both debt and equity. Now, it's obvious that only the most well managed and fiscally sound of the companies will survive. While there are many indicators of the health and survivability of a company, there are three indicators worth looking at in addition to the bottom lines. The first is the sell side indicators and short interest, analyst recommendations and ownership. A quick view of these helps to provide an indication of how a company compares with its competitors. |
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| | For the reasons listed above, I think there is a minimal probability that NRC will be acquired. Therefore, I believe that upside conditions should be calculated on the underlying earnings power of the NRCIB share class. For 2014, I estimate NRC's net income to be approximately $22 million with free cash flow of $24 million, the difference due to the aforementioned amortization of intangible assets. At the current level of shares outstanding, the NRCIB share class would be allocated $12 million in free cash flow. Given NRC's subscription-based model, mid-teens revenue growth, and high-quality management, I would be comfortable owning the shares at a 5% free cash flow yield. This equates to an aggregate value for the NRCIB share class of $240 million, or $66 per NRCIB share, representing a return on capital of 145%. |
