rader on Briefing is buying SLCA and he's planning to hold SLCA for weeks or months
Trader on Briefing is buying SLCA and he's planning to hold SLCA for weeks or months...not interested in intraday noise
ScalpTrader: SLCA -- Note that price action surrounding the secondary offering could get noisy. I'm planning to hold for several weeks/months, so not that concerned about intraday noise.
ScalpTrader: SLCA Swing Trade -- If you would like some color on SLCA, please see our recent commentary on the name (21.87 -0.82) -Update
Stock was breaking out until the holders announced a big secondary. Name has come in 5 pts since the offering was announced on March 11. The 8.5 mln secondary priced this morning at $22.00.... see recent profile. I like the story based on strong earnings trend, leadership position in the drilling proppants market and inexpensive valuation relative to peer HCLP.
ScalpTrader: SLCA -- Picking up some SLCA for a Swing Trade following dip on the secondary offering.
For some quick background, SLCA is the second largest domestic producer of a specialized mineral called commercial silica. In its largest end market, oil & gas proppants, its frac sand is used to stimulate and maintain the flow of hydrocarbons in horizontally drilled oil & gas wells. The recent technological advances in the hydraulic fracturing process, which have made the extraction of large volumes of oil & gas from shale formations economically feasible, has spurred a lot of demand for SLCA's frac sand. Oil & Gas accounts for about 55% of revs with the remaining 45% being sold for industrial applications, including glassmaking and chemical manufacturing. SLCA call this its Industrial & Specialty Products (ISP) segment.
SLCA produces a wide range of frac sand sizes and it's one of the few commercial silica producers capable of rail delivery of large quantities of frac sand to each of the major US shale basins. As a result, the company has become a preferred supplier and it's experiencing high demand for its frac sand. To meet this demand, over the past couple of years, SLCA has increased production capacity which we'll talk more about later.
In sum, SLCA posted a very impressive quarter. Their oil & gas segment is clicking on all cylinders as demand and pricing are robust. This has allowed them to take market share. What stood out to us was when management said that they had to turn business away because they were sold out of product. This makes the capacity expansion important. It sounds like the Sparta facility will start adding some pretty substantial incremental revenue in 2H13. The new resin facility in Rochelle seems like it's facing some tougher end markets right now but they are positive for the long term. The other thing that stands out to us are the margins. EBITDA margins in the low 30% range is quite impressive.
SLCA is best-known as a "fracking play" as oil & gas is its largest market.
what's nice about SLCA is that they are less exposed to natural gas prices than the drillers because they get paid on the volume of drilling not the end selling price. Lower prices do reduce demand for drilling generally but it has gotten so cheap to extract hydrocarbons this way that it still makes sense and there are still a significant number of drillers out there.
SLCA made its IPO debut just over a year ago on February 1, 2012, pricing at $17. The stock is up sharply today but it's still not too much above its IPO price. Also, analysts expect them to report EPS of $1.66 in 2013 for a P/E of about 13.3x, which seems pretty cheap for a company with these growth rates and margins. Plus the capacity expansions should add nicely to results somewhat in 2013 but more in 2014