The Value Investor Report newbie Gulf Marine Services (LSE: GMS) posts an awesome set of results today which should come as no surprise to those following The Value Investor Report portfolio over the last few weeks.
GMS stock is up to 135p as I write which is very close to my initial target price of 140p.
Here are some numbers:
Of particular note is the fact that GMS were able to utilise 97% of their fleet for the year, a new build program which will increase fleet size from 9 to 12 vessels by 2016 with construction still on schedule and contract wins that have given very clear earnings visibility to shareholders for the foreseeable future:
- Two new contracts for the existing SESV fleet: a Large Class vessel four-year charter in the North Sea (two years firm with two 12-month options) and a Small Class vessel 12-month charter in MENA (six months with up to six months option).
- Four new contracts for the new build SESV fleet: one Large Class vessel initially contracted for four months directly followed by a long-term contract of four years (three years plus a one-year option, signed in January 2015), the first Mid-Size Class vessel contracted for five years (two years firm with three one-year options) and an enhanced Small Class vessel contracted for five years (three years firm plus a two-year option).
- Three significant contract extensions from existing clients for SESV fleet: one Large Class vessel in the North Sea and two Small Class vessels in MENA.
All in all a pretty good set of results which is backed by a positive outlook from Duncan Anderson, Chief Executive Officer for GMS:
…As our fleet continues to grow we believe 2015 will be a year of progress…The continued demand for our vessels highlights the value of our cost-effective solutions as our core Opex-focused oil and gas clients seek to extract maximum value from their offshore assets, which is increasingly relevant in the current oil price environment. Whilst we cannot say with certainty how GMS will be affected by the recent rapid decline in the oil price, any effects to date have been limited and we believe that the outlook for GMS continues to be good. With over US$ 700 million of backlog derived exclusively from Opex rather than Capex-related activities, mainly for NOCs in the low cost production areas of the Middle East, GMS is well-placed to continue to grow its business.
Last time I covered Gulf Marine I said that all else being equal a revenue increase leading straight to the bottom line will give shareholders confidence to hold stock.
I also said that net debt would need to decrease by circa $50 million as a hat tip towards greater control of indebtedness. Whilst this has not been achieved ($302 million in 2013 down to $273 million for 2014) management has gone at least some way towards greater control over it’s liabilities.
The final item on my wishlist for GMS’ preliminary results was an increase in EPS.
This has also not been achieved due to higher general and administrative costs as a result of listing on the LSE although adjusted EPS (by taking out IPO costs) has by the skin of it’s teeth, scraped a higher number than the previous year:
As stated in my previous post the strength of earnings visibility and managements understanding of how to make a profit in an environment where oil prices are at historic lows form the basis of the investment case for holding GMS stock.