Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.
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I am looking for businesses trading at a discount to intrinsic value where management is actively working to close that gap. Helix Energy Solutions seems to fit this framework. The company operates specialized vessels that provide offshore oil producers with services such as production enhancement, well decommissioning, support for offshore renewable projects, and related activities. At current levels, the stock embeds a meaningful margin of safety.
Several factors support the margin of safety in Helix's case.
First, the company trades at roughly $980 million despite a tangible book value nearly $1.5 billion and two to three times replacement cost (based on my estimates). Some temporary factors have caused this market pessimism. In the North Sea, offshore activity is pressured by volatile oil prices, potential tax policy changes, and geopolitical uncertainty. Additionally, one of Helix’s vessels is temporarily out of service for a required regulatory docking. Moreover, the customer's planning, engineering and permitting has caused delays in Helix's vessel deployment.
Ordinarily, a company trading at such a large discount to its intrinsic value would be losing money. However, Helix remains profitable. In the first six months of 2025, the company generated $84 million in operating profit, and over the past five years it has averaged roughly $169 million annually.
Second, the balance sheet is strong with no net debt and no significant maturities until 2029 - an important positive factor as Helix is involved in a cyclical industry. Third, management has been returning capital to shareholders through buybacks and has committed to deploying at least 25% of free cash flow toward repurchases. Buying shares below intrinsic value creates meaningful accretion for remaining shareholders. Lastly, Helix has a backlog exceeding $1.4 billion, slightly above the company’s trailing twelve-month revenue, providing good visibility into future cash flows.
Helix’s operating model provides additional upside drivers: a) It is largely a fixed cost business. Thus, as utilization increased from diminishing short-term issues, the cash flows should enhance, b) They provide an integrated service to manage all aspects of full-field decommissioning. This enhances their value proposition in addition to enhancing the life of wells, c) The company completed it major growth capital investments prior to Covid and now only incurs maintenance capital expenses. Accounting-wise, the result is to show a small operating income on income statement while the free cash flow is much higher.
Management is well aligned: the CEO’s stock ownership far exceeds his cash compensation, incentivizing value creation over empire building. His reputation is generally good : on Glassdoor, Helix holds a modest rating of about 3.5/5 in Houston, with roughly 88% of employees indicating they would recommend the company to a friend. On Comparably, he carries a CEO approval score of 73/100, placing him in the top quartile relative to peers.
On closing the value gap, management has taken tangible steps to strengthen the company’s positioning: (1) share repurchases, (2) dilutive convertible debt retirement last year, and (3) diversification of the busines beyond offshore oil markets into subsea robotics and wind-trenching.
As the short-term problems ease and growth opportunities in offshore operating expense and decommissioning (per company) unfold, I expect company's vessels utilization to increase leading to growth in cash flows and likely market prices. Even in the near term, the company has guided 2025 free cash flow in the range of $90 million to $140 million implying 9% to 14% yield when AA corporate bond yields 4.6%. Researching various sources gives me the belief that supply for new build is very low. Rather older vessels are upgraded and shipyards remain focused on other vessel classes.
The company is not without risks. A sustained decline in oil prices could prompt offshore drillers to scale back production, and in a liquidation scenario Helix’s assets may not be easily converted into cash given its relatively low working-capital intensity. That said, there are mitigating factors. The industry tends to be somewhat self-correcting, and Helix’s business is more closely linked to operators’ operating expenditures rather than capital expenditures, which are typically the first to be reduced in downturns. Offshore production also has a lower cost per barrel compared to shale, and certain activities—such as well abandonment—are legally mandated, ensuring a baseline of demand. In these types of investment situations, a group operation of such stocks together with patience usually results in fruitful results.
Based on the facts and reasoning outlined above, I like Helix’s common stock as it offers an asymmetric risk and reward: a significant margin of safety, aligned management, visible cash flows and the potential for attractive long-term returns while the management is trying to close the intrinsic value gap.
Abhay Srivastava is the Founder and Managing Member of AS Investment Partners LLC, a value investing firm (www.asinvpartners.com).
