Editor's Note: Below is an excerpt from a research note published by our Energy analyst team on August 8, 2018. Shares of TUSK were trading around $40/share. The stock has tumbled since then and is down approximately 25%. For more information on accessing our institutional research email email@example.com.
The soap opera nature of this story and its dependence on an allegedly corrupt public utility, PREPA (Congress’ words not ours) could and maybe should have provided the catalysts needed to make the idea work. Yet, Cobra has been able to navigate the potential political potholes on its way from an initial $200MM contract to ~$1.9B in total contract awards.
In our initial work on TUSK, we didn’t believe that Cobra would win a 2nd contract in any material amount ($900MM) or at the high rates (~$3.9K/day for T&D employees) that it was able to attain in what was presented as a competitively bid RFP process (more on that HERE). But, we did like the risk/reward TUSK offered at $33 and we still like it at $38.
We value TUSK’s ex. PREPA businesses at ~$22/share assuming a mid-point blended multiple of 5.2x on EBITDA estimates of ~$185MM. Assuming no additional contract awards in Puerto Rico, and once the remaining $985MM is exhausted, we get to an equity value of $27/share, or 30% downside.