Peak-to-trough, the MSCI World Energy Equipment & Services index fell 43 per cent since midway through last year and, although crude oil prices appear to have stabilised during the second quarter of 2015, investor sentiment towards oil services companies remains lukewarm. However, we think that the sector-wide pullback has opened up buying opportunities for investors - take Gulf Marine Services (GMS), an oil services company that remains in expansionary mode.
- Much work with state-owned oil majors
- Relatively stable revenues
- Fleet expansion on track
- High utilisation rates
- Lukewarm sentiment towards oil services shares
- Downward pressure on hire rates
Gulf Marine’s share price is down by a quarter during the past 12 months. This is overly harsh because, by comparison with industry peers, the company’s business mix offers more resilience against oil price fluctuations. And Gulf Marine is expanding its services capacity significantly. So, in a sense, the company combines both defensive and growth characteristics.
The company, which was founded in 1997, builds and maintains self-propelled, self-elevating jack-up barges (SESVs) for use in offshore oil and gas fields. Gulf Marine has offices in both the UK and Saudi Arabia, but its main operational base is in Abu Dhabi. Its fleet of SESVs is technically advanced and among the newest in the industry.
The closeness of the fleet to the Gulf of Arabia is central to its prospects, given that a high proportion of its contracted work is with national oil companies (NOCs) in the region. Gulf’s long-standing relationships with the likes of Saudi Aramco, Dubai Petroleum, and ADNOC provide relative stability.
NOCs take a long-term view and are therefore less inclined to trim expenditure. Because of their vast reserves, a high proportion of NOCs’ contracts are linked to operating – as opposed to capital – spending, which makes for comparatively predictable revenues. This is borne out by the 95 per cent utilisation rate for Gulf’s fleet during the first quarter of this year.
At the end of the quarter, Gulf’s order backlog stood at $685m (£445m), compared with $395m a year earlier. The backlog comprises $367m of firm and $318m of optional contracts, all of which are linked to operational and maintenance work. It’s also worth noting that, since 2007, clients have exercised more than 90 per cent of their options.
Aside from the relative security of its contracts, it is clear Gulf is still growing. Its new-build programme remains on track (and on budget) to have expanded its fleet size by two-thirds in the two years to the end of 2016.
The outlook for Gulf remains positive, with strong demand driven by its core operational activities at brownfield sites in low-cost production areas of the Middle East. Although downward pressure on hire rates for SESVs remains a risk, there was no evidence for this in the first-quarter update.
| GULF MARINE SERVICES (GMS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 125p | MARKET VALUE: | £437m | |
| TOUCH: | 124-125p | 12-MONTH HIGH: | 164p | LOW: 92p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 66p | NET DEBT: | 76% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2012 | 143 | 51.3 | 16.0 | nil |
| 2013 | 184 | 73.3 | 23.7 | nil |
| 2014 | 197 | 80.4 | 23.7 | 2.33 |
| 2015* | 245 | 98.8 | 26.6 | 2.66 |
| 2016* | 311 | 149 | 40.2 | 4.02 |
| % change | +27 | +51 | +51 | +51 |
Normal market size: 3,000 Matched bargain trading Beta: 0.6 *Barclays forecasts £1=$1.55 | ||||
