It’s not the outcome that analysts were hoping for — Trinidad Drilling has concluded its strategic review process without receiving any bids it deemed suitable for a sale or merger.
The company launched the review in February in order to identify the path to improve its trading price. While it continues to review certain non-core asset sale opportunities, Trinidad’s board has determined that the best alternative to improve shareholder value is to pursue its revised five-year strategic plan.
“We would have preferred to see Trinidad Drilling be acquired/merge with a competitor, and expect its valuation to the peer group to remain,” GMP FirstEnergy analyst Ian Gillies wrote in a research note on Wednesday.
“We are disappointed with this outcome given our view that consolidation remains a key tenet of a healthier oilfield services market in North America. We do not know the nature of the bids submitted, but suspect the market would have viewed a share for share transaction (regardless of premium) positively.”
The strategic plan contains four key initiatives, Gillies noted: 1. Strengthen its commitment to financial discipline, free cash flow and improve its debt metrics; 2. Leverage its high-quality asset base to drive profitable growth and strong returns; 3. Promote a culture of high performance, with improved shareholder alignment; 4. Expand the Trinidad technology platform.
“In our view, management is going to need to execute 10-12 consecutive quarters of financial discipline aligned with the strategy before its trading metrics realign with the peer group. As such, we believe the company is going to need to be selective in its capital allocation initiatives with readily accessible data for the investment community to judge the merits of each capital investment.”