Michael Melby of Gate City Capital Management presented his in-depth investment thesis on Dawson Geophysical (Nasdaq: DWSN) at Best Ideas 2018.
Dawson Geophysical is the largest provider of onshore seismic acquisition services for the oil and gas industry in North America. Customers include oil and gas exploration companies and multi-client seismic data libraries. Operating results suffered as the decline in oil prices in 2014-2015 reduced demand for the company’s services. A strong balance sheet and conservative capital structure helped Dawson survive a prolonged industry downturn that resulted in restructurings and bankruptcies for many peers. The seismic acquisition market has recently showed signs of improvement as rig counts have increased, the outlook for exploration capital spending has improved, and seismic crews are put to work. The balance sheet continues to be rock-solid, with $42+ million in cash, no debt, and owned property and equipment with book value of $90+ million. Dawson recently had an enterprise value of only $75 million. It is attractively valued at ~0.5x revenue and ~0.7x tangible book value. Mike expects Dawson to generate EBITDA of $25+ million in 2018, which would result in forward EV/EBITDA of less than 3x. Based on Mike’s DCF analysis, he values Dawson at $150+ million or nearly $7 per share.
About the instructor:
Michael Melby is the founder and portfolio manager of Gate City Capital Management, a micro-cap value focused investment firm. Before starting Gate City Capital, Michael worked as a research analyst at Crystal Rock Capital Management where he covered the consumer, restaurant, retail, and gaming sectors. Michael previously worked at Deutsche Bank Securities in their Debt Capital Markets group and at the University of Notre Dame Investment Office where he focused on natural resources, fixed income, and risk management. Michael earned an MBA from the University of Chicago Booth School of Business where he graduated with Honors and a BBA in Finance from the University of Notre Dame where he graduated Summa Cum Laude. Michael is a CFA Charterholder and has earned the Financial Risk Manager designation.
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