WEBVTT - Bob Robotti Says Subsea 7 Is a Compelling Investment (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg to Washington, d C.

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<v Speaker 1>Bloomber to Boston, Bloomberg twelve to San Francisco, Bloomberg nine

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<v Speaker 1>to the country and around the globe the Bloomberg Radio

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<v Speaker 1>plus a Bloomberg Got Gone. This is taking stock. Oil

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<v Speaker 1>prices are down nearly three percent today, down a dollar

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<v Speaker 1>twenty two a barrel, the forty one fifty four. This

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<v Speaker 1>comes after US inventory data shows that domestic inventories of

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<v Speaker 1>crude oil and petroleum products rose last week to a record.

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<v Speaker 1>We're gonna try to find some value looking at the

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<v Speaker 1>energy industry right now. Let's get value from Charlie Pellock.

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<v Speaker 1>He's in the Bloomberg newsroom with the Bloomberg Business Flash,

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<v Speaker 1>and I think pim Fox. Let's begin with those energy stocks.

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<v Speaker 1>We've got trans Ocean and Excel Mobile falling at least

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<v Speaker 1>one percent. They're leading energy company's lower crude as PIM mentioned,

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<v Speaker 1>down now buy about two point nine percent. Stocks are falling.

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<v Speaker 1>Sm P five hundred index down by the most in

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<v Speaker 1>more than a week. Energy producers tumbling along with the

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<v Speaker 1>price of crude oil. We're brought to you by national

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<v Speaker 1>realty Providers of one hundred percent satisfaction guaranteed New York

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<v Speaker 1>dot net SMP five hundred index down six to drop

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<v Speaker 1>there of three tents of one percent to seventy five down,

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<v Speaker 1>Industrials down thirty four, a drop of two tents of

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<v Speaker 1>one percent to eighteen thousand four d az stackdown eighteen

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<v Speaker 1>to fifty two oh six, a drop there of four

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<v Speaker 1>tenths of one percent. To Bracco Lacos is head of

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<v Speaker 1>Equity Strategy and Global quad Research at JP Morgan Chase Bank,

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<v Speaker 1>and he talked about what it would take to keep

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<v Speaker 1>markets moving higher. We do need to see I would say, one,

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<v Speaker 1>still a relatively stabilizing dollar trend, and we need to

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<v Speaker 1>see oil prices that continue to stabilize and not the

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<v Speaker 1>goal let's say the forties um. And we would hope

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<v Speaker 1>for interest rates to stay a little because if you

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<v Speaker 1>look at this broader profits cycles has two thousand and seven,

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<v Speaker 1>the biggest contributor to earning his growth, in my opinion,

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<v Speaker 1>has been one factor interest expensed savings that has basically

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<v Speaker 1>end up resulting in record high margins about ten point

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<v Speaker 1>seven percent for SMB that was saw in the last

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<v Speaker 1>year and right now we've got the ten year up

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<v Speaker 1>ten thirty seconds, Zeal there one point five one and

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<v Speaker 1>Gold up by thirteen seven game narrow four tenths of

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<v Speaker 1>one percent. So again recapping a move law for stocks

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<v Speaker 1>twenty eight minutes to go ahead of the close SMP

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<v Speaker 1>down six a drop of three tenths of one percent,

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<v Speaker 1>and the three thirty two on Wall Street. Now, let's

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<v Speaker 1>take a look at other news from around the world.

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<v Speaker 1>Thank you, Charlie from the Bloomberg News room. I'm Rainey

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<v Speaker 1>in Essensio. This news update is brought to you by

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<v Speaker 1>Liberal groups want Hillary Clinton to reject appointments from Wall Street.

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<v Speaker 1>Bloomberg's Bob Moon has the story. It is a page

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<v Speaker 1>right out of the campaign playbook of Bernie Sanders. There's

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<v Speaker 1>a promise if elected president Goldman Socks is not going

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<v Speaker 1>to have a Secretary of Treasury for a sad administration.

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<v Speaker 1>An alliance of fifteen progressive groups several of which backed Sanders,

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<v Speaker 1>is pressuring the Democratic presidential nominee to keep people connected

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<v Speaker 1>to Wall Street out of her transition team in the

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<v Speaker 1>White House if she wins the November election. Move on

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<v Speaker 1>dot Org, Democracy for America and other groups say rejecting

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<v Speaker 1>people with Wall Street connections would demonstrate Clinton is serious

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<v Speaker 1>about her promises, such as further tightening regulations on the

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<v Speaker 1>financial industry. Bob Moon Bloomberg Radio in Turkey, president ar

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<v Speaker 1>receipt type of air Towan is turning of the heat

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<v Speaker 1>on the nation's banks. He says if they do not

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<v Speaker 1>lower mortgage rates, he'll consider it an act of treason.

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<v Speaker 1>The market average is close to fourteen percent. Air one

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<v Speaker 1>says rates should be cut to about nine. ESPN says

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<v Speaker 1>veteran sportscaster John Saunders has died. No cause was given then.

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<v Speaker 1>John Saunders was sixty one years old, and the city's

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<v Speaker 1>Department of Health and Mental Hygiene is expanding the guidelines

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<v Speaker 1>on who should be tested for ZEKA. It will include

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<v Speaker 1>anyone with the most common symptoms fever, a widespread skin rash,

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<v Speaker 1>joint pain, or conjunctive vitus. Officials earlier said only those

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<v Speaker 1>who had traveled to an affected region or their sexual

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<v Speaker 1>partners should be tested. Global News twenty four hours a day,

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<v Speaker 1>powered by more than twenty undred journalists and analysts in

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<v Speaker 1>more than one twenty countries. I'm Rainy in Essensio. This

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<v Speaker 1>is Bloomberg, Charlie, and we thank you. What again recapping

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<v Speaker 1>Stock's law SMP five hundred index down six so drop

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<v Speaker 1>there are three tenths of one percent to twenty one

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<v Speaker 1>seventy five. I'm Charlie Palatine. That's a bloom Bread business flash.

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<v Speaker 1>You're assuming to taking stock with pim Box and Katholeen

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<v Speaker 1>Hays on Bloomberg Radio. For more than two years, strong

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<v Speaker 1>oil production from the Organization of petroleum exporting countries and

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<v Speaker 1>those outside the blocks such as the United States and Russia,

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<v Speaker 1>have created a supply overhang that has dragged the price

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<v Speaker 1>of oil down. Oil today down nearly three percent. Down

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<v Speaker 1>A dollar and a quarter forty one dollars fifty three

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<v Speaker 1>cents will buy you that barrel of West Texas intermediate crude.

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<v Speaker 1>So what prices low? Are there bargains? Is there a

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<v Speaker 1>value play? Let's find out from Bob Robodi. He is

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<v Speaker 1>the founder and the president of Roboti and Company, and

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<v Speaker 1>he joins me in the studio. Bob, thanks for coming in.

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<v Speaker 1>Always great to see you. Great great tell people a

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<v Speaker 1>little bit about your background. How long have you been

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<v Speaker 1>doing this looking for value and energy and maybe tell

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<v Speaker 1>us have you seen this kind of market before? I

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<v Speaker 1>guess my first energy stock and that one of my

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<v Speaker 1>first investments was forty years ago, so I've got forty

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<v Speaker 1>years of history. And of course a lot of things

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<v Speaker 1>have transpired in the oil business since then, so we've

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<v Speaker 1>seen many things like this, you know, as they say,

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<v Speaker 1>history does rhyme, and we've seen things a lot worse

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<v Speaker 1>than this, and we've seen things that are pretty much

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<v Speaker 1>analogous to this. In the meantime, it's a great opportunity

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<v Speaker 1>to be able to buy things if you're a long

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<v Speaker 1>term investor, long term investor and focused on deep value.

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<v Speaker 1>Uh right, the deep value, and that is predicated on

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<v Speaker 1>what we think the earnings power the business is. So

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<v Speaker 1>that's what you know. It is not an asset that

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<v Speaker 1>is cheap and below book, but as an asset that

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<v Speaker 1>will generate cash flows that is significantly greater than the

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<v Speaker 1>current implied value of the company. Is all right, let's

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<v Speaker 1>talk about one just maybe as an example, you were

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<v Speaker 1>taking a look at one of the oil drilling stocks

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<v Speaker 1>at Wood Oceanics. Tell us about how that exemplifies your strategies. Sure, Actually,

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<v Speaker 1>at what is the first stock I did buy in

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<v Speaker 1>the energy business? In V six, I first bought the company,

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<v Speaker 1>so I have a very long history with the company

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<v Speaker 1>in the business. The one thing I will tell you

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<v Speaker 1>that's negative about the business is UH, it is uh

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<v Speaker 1>there are no barriers to entry in the business. And

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<v Speaker 1>you know, one of the large players in businesses seed Drill,

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<v Speaker 1>wasn't in business ten years ago, so that's one thing

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<v Speaker 1>you have to bear in mind. Uh. And a number

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<v Speaker 1>of years ago we realized that this was going to

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<v Speaker 1>be a problem and sold down our interest. But more recently,

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<v Speaker 1>what we think is the valuations today, Uh, we think

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<v Speaker 1>the earnings power of the business is six dollars a share.

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<v Speaker 1>We think we understand the fleet having invested in it

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<v Speaker 1>for all that time, and really think fleet dynamics are

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<v Speaker 1>supply is declining because the old vessels are not competitive,

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<v Speaker 1>are going away, and we think the demand will be

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<v Speaker 1>there because we think deep water exploration development is still

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<v Speaker 1>something that is part of the major's UH. Combination of

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<v Speaker 1>how they produce well, so that just under ten dollars

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<v Speaker 1>a share nine dollars in eighties six cents, you say

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<v Speaker 1>that the company is gonna earn six dollars a share. Right,

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<v Speaker 1>the the fleet is a relatively small fleet, but it's

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<v Speaker 1>all new equipment and so therefore it has thirty year

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<v Speaker 1>life to it. And that's what it is if you've

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<v Speaker 1>got supply demand balance of the fleet, and we think

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<v Speaker 1>that that happens sometime over the next few years. When

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<v Speaker 1>that happens, exactly, we're out exactly sure, uh, And but

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<v Speaker 1>we also believe the balance sheet is such that they

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<v Speaker 1>have the staying power that they're gonna be there when

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<v Speaker 1>those earnings do come to play. All right, Now they're

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<v Speaker 1>based in Houston. Now I'm gonna take you across the ocean,

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<v Speaker 1>and i want you to focus on a company. It's

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<v Speaker 1>based in London, uh, Subsea seven, but it's a Norwegian company.

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<v Speaker 1>What drew you to Subsea seven, what drew is to

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<v Speaker 1>Subsea seven was that with Oceanics so understanding the all

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<v Speaker 1>shore drilling business and how all shore development works, and

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<v Speaker 1>there is no barrier to entry in that business. Subsea

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<v Speaker 1>seven we can trust as a business that has a

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<v Speaker 1>barrier to entry and people don't perceive that, uh, and

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<v Speaker 1>so we think that's a very significant part of it.

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<v Speaker 1>We also think, of course today there's a number of

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<v Speaker 1>positive attributes. Subsea seven has a very strong balance sheet

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<v Speaker 1>four five hundred six hundred million in net cash on

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<v Speaker 1>the balance sheet. It's competitors over the last few years,

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<v Speaker 1>A couple of them have gone out of business, a

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<v Speaker 1>couple others of badly damaged. So the competitive landscape is

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<v Speaker 1>significantly improved for the company. The capital intensity of the

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<v Speaker 1>business has gone down because there's plenty of vessels, but

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<v Speaker 1>it's not a vessel based businesses and engineering uh expertise

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<v Speaker 1>business and there are very few people there are only

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<v Speaker 1>three people in the top tier. So those are all

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<v Speaker 1>attributes that kind of come together that we could make

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<v Speaker 1>it extremely low valuation, strong balance sheet, uh inside our

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<v Speaker 1>ownership of stock, so a very compelling investment today. All right,

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<v Speaker 1>So a sub side is seven uh so far this

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<v Speaker 1>year still room to run. Uh sure if stocks down

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<v Speaker 1>from twenty seven dollars to you know, it's up at

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<v Speaker 1>eleven today. So and that's what we think. The earnings

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<v Speaker 1>power of the business has improved in the downturn. The

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<v Speaker 1>competitive landscape. Its further differentiated them from their competitors. The

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<v Speaker 1>nature of fields and getting costs down and being more

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<v Speaker 1>engineering oriented and focused means they have a higher value contribution.

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<v Speaker 1>They partnered with UH with slumberget in the downturn too,

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<v Speaker 1>so very strong relationships and very differentiated UH proposition to

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<v Speaker 1>their customers. Tell us a little bit about master limited partnerships.

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<v Speaker 1>What should people be wary of? Give you about seconds

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<v Speaker 1>or so, sure you know. Master limited partnerships are, of

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<v Speaker 1>course a formula for a disaster. You have capital allocators

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<v Speaker 1>who are incented. They get fifty of the upside of

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<v Speaker 1>the osmins they make. You have investment bankers who are

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<v Speaker 1>great at raising capital UH. And of course, a year

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<v Speaker 1>or two ago in this space, it was very low

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<v Speaker 1>costs because people wore starved for yield. People didn't understand

0:10:10.640 --> 0:10:13.280
<v Speaker 1>the investment risks, so it's a you know, and of

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<v Speaker 1>course you had investors who were dying for risk. So

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<v Speaker 1>all those things came together and then they told the

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<v Speaker 1>story where you could have your cake you needed to.

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<v Speaker 1>We could distribute out all of these earnings and yet

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<v Speaker 1>grow the business. You can't do both things Capitals Limited.

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<v Speaker 1>Thank you very much, Bob, Robody, founder and President of

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<v Speaker 1>Robody and Company, talking about deep value in looking for

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<v Speaker 1>oil in deep places sub Sea seven as well as

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<v Speaker 1>Atwood Oceanics. You're listening to taking Stock. I'm pim Fox.

0:10:43.880 --> 0:10:47.560
<v Speaker 1>Coming up, we'll tell you about hunting for stocks in

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<v Speaker 1>the stock market, rather than looking for which way the

0:10:51.040 --> 0:11:01.960
<v Speaker 1>market will go. This is Bloomberg. Bloomberg. Taking Stock has

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