The distribution business is heavily reliant on scale. They either ran or participated in running NOV through multiple cycles, stayed away from debt, and strengthened their business through each cycle they participated in - beside delivering exceptional returns to their shareholders during their tenures and CEO and president.īeyond these somewhat obvious observations, I'm very attracted to businesses that are in the top 3 of their peer group (by size), have huge and dense distribution networks, low maintenance capex requirements, low leverage, operate in highly fragmented industries that are begging for consolidation, have high insider ownership, high manager incentive with far out of the money stock options, and likely have temporarily depressed margins. The managers of this business (Pete Miller and Robert Workman) also have exceptional track records. The business, although going through a difficult time, has a very successful operating history. I won't argue this here as it's not the purpose of this article.įirst, why DNOW?: Distribution NOW is basically one of the few largest distributors to the energy sector in the world (for a public comparable, one could compare MRC Global (NYSE: MRC)). If you think that the age of O&G is over, you can likely stop reading now. Beyond their use for all these applications, the current low price helps them to continue to be used for longer periods of time (discouraging investment in more uneconomical feed sources). O&G is also used to make Pipes, roads, coolant, bottles, inks, detergents, phones, tires, hand lotion, deodorant, fertilizers, and a huge host of things not mentioned. Not only is it practically our only source of fuel for cars, trucks, semis, jets, planes, barges, freighters, heat, etc. While the age of O&G may be (slowly) ending, it is very far from being over. O&G are an incredibly integral part of my life, my business, likely your life and your business, our country, and the worlds economy. Like with any company one looks at in depth, I could go on for pages and pages on what all this entails - but I won't. DNOW also offers its customers supply chain solutions, inventory management, warehousing, metrics, and business process reporting. They offer over 300,000 sku's such as pipe, valves, valve automation, fittings, tools, safety supplies, electrical products, drilling equipment, paints, and coatings. But maybe that's a good thing, because sometimes it's hard to know when you're winning.ĭistribution NOW has a tad over 5,000 employees and about 300 locations worldwide. Rig count dropped from 1500+ to 500 and customer capex was slashed. Their industry and customers almost immediately began to deteriorate. It had a lot of things going for it: The industry was booming, it was a debt free spin, almost all of NOV's top managers (who have a very nice track record) came with the company, it already had a huge asset footprint, relationships with drillers, majors, and super-majors, and plenty of sell-side hype.ĭNOW has fallen over 60% since the spin, and probably for good reason. It went public around $32 in late spring 2014. At the time, the spin was one of the more hyped spins I had watched in a while. ![]() DNOW runs basically the same business model, but concentrates on supplying the oil and gas industry.ĭistribution NOW was spun off of National Oilwell Varco (NYSE: NOV) in 2014 just prior to the incredible downturn in the oil patch. If you're not familiar with the business, think of Fastenal (NASDAQ: FAST), MSC Industrial (NYSE: MSM), or Grainger (NYSE: GWW). DNOW is no exception with annual maintenance capex at $10-15 million. ![]() In general, distribution businesses can run pretty capex-lite in bad times and usually ramp up capex as their markets get better. The company buys products from various manufacturers and wholesalers, aggregates them so their customers have a one-stop shop for all maintenance, supply, and operational needs and makes a thin margin for doing so. ![]() ![]() " If I could know only one thing about an investment I'm contemplating, it might be how much optimism is embodied in the price."ĭistribution NOW (NYSE: NYSE: DNOW) is a pretty simple business to understand.
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