YB new stock pitches (Wed, Dec 10)

Borr Drilling Limited (BORR), a jackup drilling company, experienced an 80% drawdown from its 2023 peak due to weak jackup market conditions with customers Pemex and Aramco cutting contracts, economic anxiety leading to cyclical stock outflows, and high financial leverage creating bankruptcy risk concerns. However, the jackup market is now rebounding with strong evidence including Aramco recalling 7 suspended rigs, extending contracts, and tendering 7 additional units for late 2026 work, while Pemex has restarted payments and BORR secured new contracts in the Gulf of America and Angola. The company reported H2 2026 coverage at $154K/day average dayrates, approximately 11% higher than H1 2026, though only 44% covered which could benefit BORR as dayrates rise. At $150K dayrate and low-90s utilization, the company is estimated to generate approximately $650 million unlevered cash flow and $200 million free cash flow relative to its ~$1 billion market cap. According to Fearnleys Offshore, recent Aramco announcements should push jackup market utilization from 91% to 96%, and as utilization exceeds 95%, dayrates can inflect quickly with outsized impact on BORR's FCF due to operating and financial leverage, with 70-80% of jackup demand considered oil price insensitive and BORR's 6-7 year old fleet well-positioned against the aging jackup fleet where 25% of demand is met by 40+ year old units.

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D-BOX Technologies, a Canadian haptic motion platform company trading at C$0.74/share, operates three business segments but derives its highest-margin revenues from theatrical royalties with 99% incremental gross margins, causing EBITDA margins to increase from 5.5% to 25.6% over five quarters. Following a three-year activist campaign by Daniel Marks that replaced old management who failed to generate profits for 23 years, new CEO Naveen Prasad is aggressively pursuing theatrical screen growth, recently adding a record 50 screens in November 2025 alone. The company's theatrical business model involves selling actuators to exhibitors who install D-BOX seats (typically 20-25 per auditorium) that generate recurring royalties from $8 ticket upcharges, with every 140 incremental U.S. screens driving $0.010 incremental EPS or 24% growth over TTM $0.042 EPS. D-BOX benefits from box office premiumization trends, blockbuster film concentration, entrenched studio relationships encoding 100-130 films annually, and competitive advantages including proprietary haptic technology and meaningful switching costs, with primary competition from 4DX which requires full auditorium conversions versus D-BOX's 2-3 row installations. The company has significant expansion opportunities with major exhibitors like Cinemark (adding 100-150 screens annually) and untapped relationships with top 25 North American chains representing a 5,037 screen TAM where D-BOX has only 10-13% penetration. At 11.4x FY26 estimated EPS of $0.060, the stock trades at a substantial discount to hardware-enabled recurring revenue peers at 20-30x P/E, with potential upside scenarios of $1.82-$2.62 per share representing 145-310% appreciation, while risks include pandemic impacts on theaters, potential streaming industry consolidation affecting box office, and competitive threats from AI-enabled encoding, though the company's 16-year encoding expertise and proprietary hardware translation processes provide defensive moats.

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Surface Transforms Plc (SCE.L), a ceramic brake disc manufacturer, trades at 1.75p per share and is valued at only 8x PE based on Q4 run-rate forecasts of £2.86M PBT from £25M revenue, despite having secured £300-400M worth of lifetime contracts with six car brands for six vehicle model lines. The company has dramatically improved manufacturing yields from 41% to 70%+ after a disastrous scaling period that saw shares collapse from 70p to 0.25p, and is expanding factory capacity from current £25M to £50M by Q1-2026 with forecasted Q4 margins of 67% gross profit, 19% EBITDA, and 11% PBT. In a sensible optimistic scenario targeting £40M revenue run-rate, the company could achieve 0.79p EPS, implying 4-5x upside potential at a 15x PE multiple (11.8p share price target). Key risks include dependence on Q4 forecasts potentially disappointing again, an aggressive LTIP granting management 13.7% of market cap over 2.5 years with unclear performance conditions, and the CEO remaining despite overseeing massive value destruction. However, debt risk is diminishing with profitability recovery reducing the threat of equity conversion from the £12.9M customer prepayments, and the £13.2M Liverpool City loan at 11.5% interest should become manageable at less than 2x EBITDA, while customer demand remains strong as evidenced by their willingness to provide unsecured prepayments during the company's darkest period.

Read the full article here. Read time: 8 min