11.12.2024
As the current Trading Year comes to a close, I have absolutely no hesitation in returning to comment on a recent favourite of mine – Gulf Marine Services (LON:GMS).
Its shares are trading at around the 15p level, and I feel that, based upon the latest information, the group’s shares are significantly undervalued.
The Business
Founded in Abu Dhabi in 1977, Gulf Marine Services has since become a world-leading provider of advanced self-propelled self-elevating support vessels.
The fleet serves the offshore energy industries from its offices in the United Arab Emirates, Saudi Arabia, and Qatar.
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 Europe.
The GMS fleet of 13 SESVs is amongst the youngest in the industry.
The vessels support the group’s clients in a broad range of offshore platform refurbishment and maintenance activities, well intervention work, and offshore wind turbine maintenance work, as well as offshore 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.
Recent Guidance
On Monday 28th October the group issued an Update on the first nine months of this trading year to end-September.
It showed revenues up 11% at $126.1m ($113.3m), while its adjusted EBITDA was 12% better at $76.1m ($67.7m), despite a 2% lower utilisation rate for its vessels at 92% (94%), but with a rise of 8% in the average daily rates at $32,800 ($30,300).
The company reported that demand in the market remained strong due to a combination of high market activity and limited vessel availability.
An estimated 18-21 new vessels are expected to be operational in the next 2 to 3 years.
It expects market growth and retirement of aged assets from 2025-2027 to absorb the supply increase.
Management Comment
CFO Alex Aclimandos stated that:
"I am delighted to see the results achieved as well as the plans moving forward adding value to the shareholders of the Company.
The solid fundamentals of the business are confirmed day after day and so is our ability to transition GMS into an agile Company serving offshore activities for Oil and Gas as well as windfarms customers worldwide."
Recent Contract Wins
The trend over the last 18 months or so, has seen numerous new contract awards contributing to the group’s higher cash flows, which have then driven ongoing reductions in net debt.
On Tuesday 3rd December, the group announced the award of a new contract for one of its small-class vessels in the GCC region.
The contract spans a total of 18 months, including optional extensions.
Chairman Mansour Al Alami stated that:
"We are delighted to see continuous demand for all our vessels in a highly competitive market.
Maintaining high utilisation is key for us to continue to deliver on our objectives.
Our backlog now stands at $503m."
The Equity
There are 1,069,946,316 shares in issue.
The larger holders include Mzi Holding (24.46%), Seafox International (10.42%), Imperial Financial Holdings (3.63%), Castro Investments (3.21%), Fiera Capital (2.94%), Bridge Fund Management (0.53%), Sanlam Investments (0.12%), Dowgate Wealth (0.12%), while Ivan Lindsay Brunette holds 2.85% and Mansour Al Alami holds 0.24% of the equity.
Broker’s Views
Analyst Daniel Slater at Zeus Capital has a positive outlook for the group’s shares and values them at 29p each.
For the current year to the end of this month, he estimates $167.2m ($151.6m) sales, with adjusted pre-tax profits of $24.2m ($22.0m), but slightly lower earnings at 1.9c (2.0c) per share.
For the coming year he sees $174.7m revenues, $42.4m profits, and 3.2c earnings per share.
His estimates for the group’s net asset value per share for 2024 is 25.9p (22.6p) per share and then for 2025 he expects 29.2p per share.
Analyst Craig Howie at Greenwood Capital Partners has a Buy out on the shares, with a 29p Price Objective.
For 2024 he estimates $168.4m revenues, $40.1m profits, and 3.0c per share in earnings.
Next year he sees $175.3m revenues, $50.0m profits and 3.7c per share earnings.
Going into 2026 his figures show $180.5m revenue, $58.8m profits and 4.4c per share in earnings.
My View
This is a cash-generative company that will soon pay down a mass of its debt.
Recent contract wins and renewals, continue the group’s positive track record, and I look for further such gains.
With three years of order visibility for its business, I see its shares, now just 15p, easily rising towards the analyst estimates.
(Profile 30.11.23 @ 13p set a Target Price of 16p*)
(Profile 22.01.24 @ 15.95p set a Target Price of 19.50p*)
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