Sapura Energy: my regret for failing to catch a falling knife

As a value investor, I look for turnarounds. These are companies whose market prices had tanked because of some business issues that I considered temporary and could be overcome.

Bursa Malaysia Sapura Energy fitted this bill in 2018 after being the darling of the stock market a few years earlier. It faced declining order books due to the declining oil prices. This is a company where there is a strong correlation between crude oil prices and its performance.

Crude oil prices are cyclical and I thought that the company was sound enough to outlast the downtrend leg of the crude oil price cycle.

Over the next few months, I built up my investment to end up with an average share price of RM 0.39 per share. Sapura had a book value then of RM 0.87 per share with a NTA of RM 0.37 per share. Ya, this is a company with a lot of goodwill and other intangibles.

You would have thought that there was enough margin of safety to ride out the storm. Analysts were projecting target prices above a Ringgit at that juncture.

Anyway, the downtrend leg of the oil cycle lasted longer than anticipated. Sapura continued to bled so that today, it had written off all the intangibles and is trading at RM 0.05 per share.

The company is still looking for a sustainable turn around. And I suspect it will have to undertake a debt and equity restructuring scheme to come back. This means haircuts for creditors and shareholders. This is a bet gone wrong and I will probably not be able to recover my investment.

Moral of the story?

Catching falling knives can be dangerous but if you succeed, you have a multi-bagger. But if you fail, it must be part of a good portfolio so that the gains from the others more than offset the losses you suffer. Sure I have such a portfolio. But this does not stop me from regretting my investment in Sapura Energy.

https://www.i4value.asia/2024/05/is-sapura-ener...