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  • Writer's pictureMark Watson-Mitchell

Gulf Marine Services Could Offer 50% Upside

Following a recent Trading Update and subsequent analyst comment, I believe that the shares of Gulf Marine Services (LON:GMS), at just 13p now, offer some strong upside potential, perhaps by as much as 50%. 


The Business 


This group, which was set up in Abu Dhabi in 1977, operates self-propelled and self-elevating support vessels (SESVs) for the offshore oil, gas and renewables sector in the United Arab Emirates, Saudi Arabia, Qatar, and Europe.  


It has become one of the world’s leading providers of these specific SESVs and operates through K-Class Vessels, S-Class Vessels, and E-Class Vessels segments, of which it has a total fleet of 13 vessels. 


What It Offers 


The fleet serves the oil, gas and renewable energy industries from its offices in the United Arab Emirates, Saudi Arabia and Qatar and its assets are capable of serving clients’ requirements across the globe, including those in the Middle East, South East Asia, West Africa, North America, the Gulf of Mexico and in Europe.  



The company offers offshore construction and heavy lifting, accommodation and hotel, well intervention and work over operations, and manpower services for the oil and gas industry; and platform maintenance and commissioning, turbine maintenance and commissioning, hotel, crane, and offshore crew transfer services to the renewables industry.  


The Fleet 


The GMS fleet, which with an average age of eight years is amongst the youngest in the industry, supports its clients in a broad range of offshore oil and gas platform refurbishment and maintenance activities, well intervention work and offshore wind turbine maintenance work, as well as offshore oil and gas platform installation and decommissioning and offshore wind turbine installation. 


The SESVs are categorised by size – K-Class (Small), S-Class (Mid) and E-Class (Large) – with these capable of operating in water depths of 45m to 80m depending on leg length.  


The vessels are four-legged and are self-propelled, which means they do not require tugs or similar support vessels for moves between locations in the field; this makes them significantly more cost-effective and time-efficient than conventional offshore support vessels without self-propulsion.  


They have a large deck space, crane capacity and accommodation facilities (for up to 300 people) that can be adapted to the requirements of the group’s clients. 


Sales Per Region and Business 


Of the 2022 trading year’s $133.2m sales, the group’s business with its E-class vessels was some 38.4% of total turnover, with its K-class vessels 36.1% and the balance 25.5% with the S-class vessels. 


On a per region basis some 38.9% of group business was within Saudi Arabia, 33.2% with Qatar, 17.0% within the United Arab Emirates, while the balance 10.8% was transacted within Europe. 


Recent Contracts 


At the start of this month the group announced contracts awards within the Gulf Cooperation Council area; two contract extensions for four years in total and one new contract for two years.  


Two contracts end in December 2025 and one ends in April 2026.  


Together these contracts increase GMS’ overall contracted backlog revenue to $326.2m. 


The group considers that these new contracts on improved day rates reflect positively in a market where GMS remains well positioned to capitalise on increasing regional demand for Liftboats. 


Management Outlook 


Executive Chairman Mansour Al Alami recently stated that: 


“Given significant improvement in backlog visibility and market outlook evidenced in the recently announced contract awards, alongside future opportunities we’re bidding for, we are confident to increase our market guidance for 2023 and to provide an even higher initial guidance for 2024.  


We continue to see strong interest for our vessels to support maintenance projects as well as new initiatives to meet growing energy requirements, for Oil and Gas as well as for renewables, and across different geographies. 


The recent contracts announcement allows us to benefit from a more balanced geographical distribution of our fleet.” 


The group has announced that it now anticipates EBITDA in the range of $83m to $86m (previously: $77m-$85m) for the 12 months ending December 2023 and $87m to $95m for the 12 months ending December 2024. 


The Equity 


There are some 1,016, 414,582 shares in issue. 


The larger holders include Seafox International (29.99%), Mazrui Investments (25.60%), Castro Investments (3.38%) and Ivan Lindsay Brunette (3.18%). 


Broker’s View – Valuation Of 20p Per Share 


Analyst Daniel Slater at Zeus Capital is estimating that the current year, to end December, will see the group return $150.9m ($133.2m) in sales, with adjusted pre-tax profits rising impressively from $19.5m to $26.5m, lifting earnings to 1.9c (1.7c) per share. 


For the coming year he is looking for some $162.8m turnover and a massive $47.0m in profits, hoisting earnings to 3.7c per share. 


My View – Setting A Target Price Of At Least 16p

 

Despite a large overall debt position, used for funding the vessels, the group is generating enough cash to pay down chunks of its outstanding. 


Its order book, contracted way out for two years plus going forward, gives its Management some operational scope to generate greater profitabilty. 


It will be aided by rising rates within its marketplace, with recent awards showing contract extensions on improved dayrates, which are expected to continue to be driven by basic supply and demand dynamics. 


The shares, which are currently 13p, have already risen 225% in the last year or so – but that does not put me off. 


In fact, it clearly shows that the wind is blowing its offshore sails in absolutely the right direction. 


My Target Price is 16p, within the next year.


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