I have not been doing this for a long time,that is to say beware of “that company”. Something is wrong with that company.
This time “That company” is CH Offshore. CH Offshore is having problem of collecting money from a major customer and is forecoming in reporting. It is hard to miss this elephant in the room even if CH Offshore is not commenting on it while reading their quarter reports.
How big is that Elephant? Trade receivables as at 3Q2012 was about US$31M while revenues for 9mth2012 was about US$39M. About 2 years back, trade receivables stood at US$9M with Revenues of US$69M. Do the math, it is simple.
CH Offshore is not a popular stock, but I do see some are going after its clean B/S with load of cash. But what are you doing by not noticing the elephant in the room or rather focusing on the wrong thing. Anyway I have nothing to add on this.
But it is interesting to think about why CH Offshore is having problem with their receivables. That is charterer rate, contract and cyclical nature of the industry.
An offshore vessel has a lifespan of about 25 years.
Offshore industry has a long cycle which mean each vessel has the chance of securing one cycle of good charter rate, I think the maximum are 2 cycles.
Having long term contract at above market rate is good but like buying market bottom, it is only after that we know the rate is good. Still remember the party where the fashion was annoucing how big is the contract and how long is the duration. Where are they now?
The problem CH Offshore is facing look precisely CH Offshore locked in super good rate and their customer is having problem paying at that rate. With that CH Offshore is facing the problem of walking away from the contract or continue.
I continue to be interested in shipping industry. The story of Loews Corporation investment in Diamond Offshore continue to inspire me.
Focus on the right thing.