Friday 29 Mar 2024
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SINGAPORE (Nov 26): OCBC Investment Research has maintained its “hold” call for Ezra Holdings with a fair value of 77 cents, down from $1.32 previously.

In a Nov 26 report, analysts Low Pei Han and Andy Wong Teck Ching are taking a more cautious view of Ezra given the company is undergoing restructuring in a tough business environment. With risks tilted towards the downside, OCBC is recommending the stock only for aggressive investors.

OCBC is reviewing its rating on Ezra now that it has ended its blackout period on the stock and its related entities due to the listing of subsidiary EMAS Offshore.

Since the start of Sept, the share price of Ezra Holdings has dropped by about 30%, losing almost half of its value year to date.

To recap, OCBC had a “sell” rating on the stock in the beginning of the year, after which the share price fell by about 30%. After an upgrade to “hold” in April, the stock has been pretty much range-bound before being hit by the recent oil price volatility.

In terms of share price performance, Ezra has been one of the hardest hit with the recent oil price fall, as it has a more deepwater-focused fleet. Its subsea segment also has exposure to the North Sea and there have been concerns about delays in project awards as well. As for the company’s operations, however, we note that FY14 (year end Aug) has actually been a better year with US$29 million in core earnings versus a core net loss of US$37 million in FY13.

Looking ahead, Low and Wong believe that the company has to demonstrate sustained utilisation levels in the Offshore Support Vessel division after having repair and maintenance issues for some vessels in 1HFY14, as well as continued order wins for the subsea segment, especially in a lower oil price environment.

Investors may also be cautious about oil companies with high net gearing, given the recent drop in risk appetite in the SGD-denominated bond market. For Ezra, its net gearing stood at 1.2x as at end FY14, but the group expects it to fall to around 0.7-0.8x by end FY15.

“Taking into account the lower P/B multiples that peers are trading at (Subsea 7 and McDermott at 0.7-0.8x, Swiber at 0.3x and POSH 0.8x), we use a 0.5x FY15F P/B for Ezra, resulting in a fair value estimate of $0.77. Maintain “hold”,” say the analysts.

Ezra is trading flat at 76 cents as at 11:18 a.m.

 

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