YB new stock pitches (Thu, Jul 17)

Helix Energy Solutions Group (HLX) presents an investment opportunity highlighted by Gate City Capital's significant 11% position, with their thesis centered on contract resets driving value. The company benefits from a substantial depreciation/capex mismatch where maintenance capital expenditures for specialized vessels are running considerably below depreciation charges, resulting in approximately 20% free cash flow yield. HLX's robotics segment offers additional upside potential as a 'free right tail' opportunity. The company's offshore sector exposure is differentiated from peers, though specific details about this differentiation aren't provided.

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Noble Corporation plc (NE) is a leading offshore drilling contractor positioned to benefit as growth in land-based oil production slows. The industry has consolidated significantly since 2019, with only four major players remaining, while nearly 50% of deepwater rigs have been scrapped over the past decade, creating supply constraints that should persist for years due to minimal capital investment. Despite recent rate pressures, Noble's 2025 guidance is fully backed by its contracted backlog, and the company's focus on cost discipline is expected to drive margin expansion and strong free cash flow generation. Management has committed to returning 100% of free cash flow to shareholders through both a 7% dividend yield and share repurchases representing 8% of outstanding shares. Noble is well-positioned to further consolidate the sector and benefit from improving offshore market conditions over the long term.

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Smiths Group plc (SMIN.L) is a UK-based industrial conglomerate with four segments: John Crane (48% of operating profit), Flex-Tek (24%), Smiths Detection (15%), and Smiths Interconnect (13%). The company is undergoing significant transformation, planning to exit the Interconnect unit by year-end and the Detection unit next year to focus on its core businesses. These core units benefit from high recurring revenue (70%+ for John Crane), strong competitive positions, and consistently deliver mid-20s ROCE with steady mid-single digit organic growth. Key catalysts include this portfolio reshaping and an aggressive buyback program that has reduced shares outstanding by nearly 15% since July 2021, with an additional £350 million (5% of market cap) authorized in January. Despite these catalysts and a strong balance sheet (<0.5x net debt versus historical 1-2x), Smiths trades at reasonable historical multiples of 11x NTM EBITDA and 17x P/E. Key risks include potential delays in restructuring, exposure to cyclical energy/industrial downturns, cybersecurity threats (including an early 2025 incident), and foreign exchange risk as approximately 75% of revenue comes from outside Europe, primarily the US.

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