MRM.ASX - MMA Offshore

[60North Investments]

Looking for thoughts on this Australian-based "provision of marine logistics and supply base services company". They've been hit by the oil & gas slowdown and probably also by the sentiment around Australian resource companies.

 

There's a good writeup from OTC Adventures from 2013 that explains quite a bit of the company. The most recent company presentation is from June 16.

 

Some bullet points:

-FY15 earnings expected to be in-line with FY14

-Cost savings: on track to exceed $15m annual savings/productivity improvement target

-FY16 according to management is going to be soft(er)

-Jaya: bought last year for $535m, of which $317m with new shares (132.1m shares @ $2.4). P/B roughly 0.93, international expansion with quite new vessels

-Analysts: CIMB's report from January has extensive tables and some discussion about the company as well. What I find interesting is their valuation summary on page 7. Discounting multiples by 30%, then discounting the blended valuation by 45% due to "uncertainty"

-Newbuilds: 5 vessels coming online in Q1-Q3 2016, two of them which are contracted to INPEX's Ichthys case

-Vessel sales: targeting $50m sales by end of FY16, probably will get a very bad price in this market

-Insider purchases: in May two insiders purchased 80k and 100k shares from the market

-Valuation: 0.25x BV, EV/EBIT 6. Market value seems to assume well below $100m operating cash flow per year going forward?

 

Does anyone have any thoughts on MMA? Unfortunately I don't have real knowledge of this market to be able to say what are the risks and opportunities here, other than saying they're essentially reliant on oil prices. Price decline just seems overdone, even though the results have been awful lately and probably will be at least in FY16.

[yadayada]

the 300m of net debt bothers me. If your going with a resource name, I think picking one with a net cash position is better. So an EV of 500m. Putting a 7x FCF multiple on that like now does not seem that crazy to me. It really is kinda scary to invest in this space. I like LCM, HOS or  DWSN and MCR better then, as a bet on O&G service companies. Since that whole space looks somewhat cheap, comparing is probably best you can do.

[60North Investments]

FY2015 results were released Aug 18th. There's also a presentation that discusses the results.

 

-Next 12 months look challenging with vessel rates and utilization both under pressure

-Oil & Gas issues hit MMA badly

-Vessels: 100mAUD impairment, H2 materially worse than H1. H1 utilization 76%, H2 65%. Rates down by up to 30% in H2. 20mAUD (out of planned 50mAUD) vessel sales contracted to date for FY16.

-Supply Base: 20mAUD goodwill impairment, margins under pressure. Secured a +100mAUD 2-yr Chevron contract. Expect stabilization at the 100mAUD revenue levels.

-Balance sheet: 320mAUD net debt, within debt covenants. BV after the impairments is still 779mAUD, so trading at 0.24x BV.

-Morningstar published Aug 19th a report on MMA. It's a decent read on the company to get an overall picture, although I'm not quite sure I agree with their valuation summary. At 0.80AUD/share (Morningstar's FV estimate) they say 2016 implied EV/EBITDA would be 4, which would mean roughly 150mAUD EBITDA. D&A was 131mAUD in FY15 so I have a hard time seeing EBIT going down from 90mAUD to about 30mAUD this year. Not that it matters in itself, but Canaccord has a price target of 1.34AUD/share.

 

This seems like one of the companies that have gotten absolutely hammered in this environment. And I'm not sure if it's justified. At 0.50AUD it's trading at multiples that imply big issues with debt and future demand. How do people view the debt? Is it really going to be a potential issue with the cash flow that they're producing (although in FY15 it went into capex)?

[60North Investments]

Trading update after 4 months into their reporting year, and things are looking bad and no sight of better times in front. 22m asset sales to help reduce the debt load, still cash flow positive even in this environment, and expects 75-85m EBITDA for FY2016. That's way below what I was thinking. Depreciation alone was 131m last year, so even with lower depreciation they'll most likely be running negative EBIT.

 

After the update this was down 20%, currently at 0.29AUD/share. Market cap is 107m, EV is 425m (probably closer to 400m at the moment after the vessel sales and some operating cash flow). I suppose this thing is either going to end very badly, or with patience it'll end up very well from these prices. Didn't think it would get down to this but a lot depends now on whether they'll survive the debt load without ugly dilutions etc.

[Guest MarkS]

Hey 60 degrees north, this is completely off topic. So please forgive the frivolity. Have you checked out the book entitled "60 Degrees North?" It looks like a great read.  http://www.caughtbytheriver.net/2015/07/17/60-degrees-north-malachy-tallack/

Thanks

Mark

[60North Investments]

Hey 60 degrees north, this is completely off topic. So please forgive the frivolity. Have you checked out the book entitled "60 Degrees North?" It looks like a great read.  http://www.caughtbytheriver.net/2015/07/17/60-degrees-north-malachy-tallack/

Thanks

Mark

 

I had no idea a book of that title existed, so thanks for bringing it up! Living on the 60th parallel north, as the nickname suggests, I'll certainly try and get my hands on that book even though I haven't read that kind of stuff in a long while. Much appreciated, Mark!