IPO Report: Franks International N.V. (FI)

Francis Gaskins |

Franks International N.V. ($FI) is based in Amsterdam, NL.  FI scheduled an $600 million IPO with a market capitalization of $4.44 billion million at a price range mid-point of $20, for Friday, August 9, 2013.

Nine other IPOs were scheduled for the week of August 5. The full IPO calendar can be found at IPOpremium.

The S-1 was filed July 29, 2013.  The manager and joint managers are are Barclays; Credit Suisse; Simmons.  The co-managers are Citigroup; Morgan; Goldman; UBS; Capital One Southcoast; Tudor, Pickering, Holt; Global Hunter; Johnson Rice; FBR; Scotiabank Howard Weil.

Summary

FI is a 75 year-old, industry-leading global provider of highly engineered tubular services to the oil and gas industry. FI believes that it is one of the largest global providers of tubular services to the oil and gas industry.

Q2 '13 revenue is estimated to be $293 million, with a 27% after-tax margin of $78 million.

Valuation

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% profit

annualizing Q1 '13

Cap (mm)

Sls

Erngs

BkVlue

TanBV

margin

Franks International N.V. ($FI)

$4,440

4.7

18.5

4.5

4.3

25.4%

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% profit

annualizing Q2 '13 est

Cap (mm)

Sls

Erngs

BkVlue

TanBV

margin

Franks International N.V. ($FI)

$4,440

3.8

14.2

4.5

4.3

26.6%

Weatherford (WFT)

$10,470

0.7

119.0

1.2

2.5

0.6%

Baker Hughes (BHI)

$20,830

0.9

21.7

1.2

1.9

4.4%

Tesco (TESO)

$504

1.0

14.3

1.1

1.1

7.0%

             

FI has the highest margins but has at the highest price-to-book value. The annualized P/E ratio is the lowest.

Glossary

Conclusion

Buy FI on the IPO.

Business

FI is a 75 year-old, industry-leading global provider of highly engineered tubular services to the oil and gas industry. FI provides services to leading exploration and production companies in both offshore and onshore environments, with a focus on complex and technically demanding wells.

FI believes that it is one of the largest global providers of tubular services to the oil and gas industry.

Three segments

FI conducts its business through three operating segments:

• International Services.
International Services segment accounted for 49% and 50%, respectively, of Adjusted EBITDA in 2012 and the first three months of 2013. 82% and 83%, respectively, of revenue from external customers in this segment was generated in offshore markets in 2012 and the first three months of 2013, the significant majority of which was from deep water markets.

• U.S. Services.
51% and 63%, respectively, of 2012 and first quarter 2013 U.S. Services segment revenue from external customers was generated in the technically challenging deep water areas of the U.S. Gulf of Mexico. U.S. Services segment accounted for 45% and 42%, respectively, of Adjusted EBITDA in 2012 and the first three months of 2013.

• Pipe and Products.
The Pipe and Products segment accounted for 6% and 8%, respectively, of Adjusted EBITDA in 2012 and the first three months of 2013.

During the twelve months ended December 31, 2012, 45% of revenue was generated outside North America, and 69% was generated from products and services provided offshore.

Recent developments

For Q2 '13 FI expects expect revenues from continuing operations of between $288.0 million and $298.0 million for the three months ended June 30, 2013 compared to revenues of $262.7 million for the three months ended June 30, 2012. The estimated increase was primarily the result of increased demand for services and products and an increase in international pipe sales.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Revenues for the three months ended March 31, 2013 decreased by $3.8 million, or 2%, to $236.7 million from $240.5 million for the three months ended March 31, 2012. The decrease was primarily due to lower external revenues of $5.9 million in the Pipe and Products segment, which was negatively affected by the BSEE's temporary shut-down of more than 20 rigs in the Gulf of Mexico in February 2013 in order for operators to replace bolts in subsea equipment that had been determined by regulators to be defective. Partially offsetting this decrease was an increase in external revenues of $1.4 million in FI's International Services segment.

Global market leader
According to Spears, FI has the number one or number two market share in each of the U.S. and international markets, both onshore and offshore.

Industry trends

Spears estimates that annual global spending on drilling and development activities increased from $236 billion in 2009 to $326 billion in 2012, and is projected to increase to $482 billion in 2018, representing a compound annual growth rate of 8% from 2009 to 2018.

Holding company structure

Following completion of this offering, FINV will act as a holding company whose sole material assets will consist of indirect general and limited partnership interests in FICV. As the owner of the general partner of FICV, FINV will be responsible for all operational, management and administrative decisions relating to FICV's business and will consolidate the financial results of FICV and its subsidiaries

Organization chart

Pre-IPO dividends to private equity shareholders

In 2012, FINV made a non-cash distribution of $484.0 million to its owners of FINV in the form of two unsecured promissory notes payable. As of December 31, 2012 and March 31, 2013, there was an aggregate of approximately $464.0 million and $443.7 million, respectively, outstanding under these notes.

Dividend policy
Following the completion of this offering, FI intends to pay a regular quarterly dividend on common stock of $0.075 per share, or an aggregate of approximately $44.7 million on an annual basis, or a 1.5% yield at a price range mid-point of $20.

FI will only be able to pay dividends from available cash on hand and funds received from FICV. FICV's ability to make distributions to FI will depend on many factors, including the performance of the business in the future.

In order to make these distributions on common stock and Series A preferred stock, FI expects that FICV will be required to distribute $60.6 million pro rata to holders of FICV interests. This aggregate amount would have represented 20.6% of pro forma net income and 13.6% of pro forma Adjusted EBITDA for the year ended December 31, 2012

Intellectual property

FI currently has 104 U.S. patents and 136 related international patents and 37 U.S. patent applications pending and 111 related international patent applications pending for equipment that its engineers have developed.

Competition

International Services Segment
FI holds established market leading positions in several of its core international service regions. The most significant competitors across international service lines are Weatherford International and, to a lesser extent, Baker Hughes.

U.S. Services Segment
The most significant competitor across U.S. service lines is Weatherford International and, to a lesser extent, Tesco Corporation.

Pipe and Products Segment
The most significant competitors across the Pipe and Products segment are National Oilwell Varco, Dril-Quip and GE VetcoGray.

Pre-IPO shareholders

FWW B.V. , 119 million shares, or 80% of common stock
Mosing Holdings, Inc., 52 million shares, or 100% of Series A Preferred stock

Use of proceeds

FI expects to receive $562.0 million from the IPO at the price range mid-point.

$444 million is alloated to repay debt. The balance is for working capital and general corporate purposes.

The notes payable were issued in order to fund a distribution of $484.0 million to the owners of FINV.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FI Frank\'s International N.V. 12.40 -0.11 -0.88 796,531
NMIG Nmi Group Inc n/a n/a n/a 0

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