|
|
|
|
|
 MARKET REPORTS |
|
Analyst report - shares
"Stock of the week": Mermaid Marine Aust.
September 3, 2007
Tim Morris, Wise Owl analyst
Stock: Mermaid Marine Australia Limited
Code: MRM
Market cap: $233.68m
Our contacts from the oil and gas sector often tell us that the days of easy and cheap oil are over. They are alluding to the fact that future sources of oil production will have to come from more remote and technically challenging locations, as conventional land based reserves deplete.
These supply side economics have seen energy prices strengthen, making offshore and deepwater exploration more feasible and increasingly common. Capitalising on this trend has been Mermaid Marine, a provider of a range of marine related services to major oil and gas exploration and production companies.
Mermaid Marine is a diversified operator of tug services, workboats, barges and labour hire, operating in the buoyant North West shelf and Browse basin regions off the West Australian coast. Net profit has grown strongly in the last few years, from $2.5m in 2005 to $12.5m in its most recent full year result. The performance even caught the eye of P&O Marine Services, and a merger was on the cards this year until the deal collapsed at the last hurdle. The performance of the company was substantially exceeding management’s expectations, and, as Mermaid’s future outlook grew brighter, it was decided that shareholders would benefit the most by going it alone, rather than merging.
To cope with the demand for its services MRM has been expanding its fleet to 23 vessels. This capital investment has seen gearing rise, with the debt to equity ratio now at 77%. However operating earnings cover borrowing costs 6 times over, leaving a sufficient margin of safety. Earnings from normal operations, excluding abnormal items have been exceptionally strong over the past few years, increasing 120% during 2006-07, after rising 100% during the prior financial year.
Although management have not issued specific earnings guidance for the 2008 financial year, their focus on capacity expansion implies that the buzzing oil and gas sector could support another year of strong growth. Even if recent trends were to slow down, we feel that the stock’s current PE of 17 is rather modest, and offers an attractive opportunity for those seeking exposure to the booming oil and gas sector, but with much lower risks and volatility.
Wise-owl.com has a buy recommendation on Mermaid Marine Australia Limited.
More articles from this week's CompareShares newsletter:
Markets: Is the party over for the US?
Forums: The mysterious world of stock forums
Superannuation: Stay with super or convert to a pension?
Ask the expert: How to determine the best stock to trade
Politics: Forget the mud, it's about interest rates
Stock of the week: Mermaid Marine buoyant
Smart Investing: Risks of beating the market
Analyst report: Is sub-prime draining our resources?
Commodities: Gold hasn't lost its glitter
Tim Morris is an analyst at Wise-owl.com, one of Australia's leading independent stockmarket research houses.
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions.
 Email to a friend
 Print this article
|
|
