A quick look at the eight Singapore-listed companies involved in oil and gas production quickly reveals a distinct dearth of value. However, the same is not true of the 29 outfits that are engaged in oilfield services.
The Oilfield Service Sector is a vital part of the oil and gas industry. But unlike explorers and producers, it is not focused on finding and extracting oil. Instead, these companies provide support services and assistance.
These so-called “picks and shovel” companies have the advantage of being able to turn a profit, regardless of whether oil is found.
With a PE of 3.2 and price to book of 0.4, Swiber Holdings Limited (SGX: AK3) is a good example of the value possibilities in this sector. The company provides integrated construction and support services to offshore oil and gas companies.
Some of its services include project management and engineering, underwater inspection, repair and maintenance and installing pipelines and power cables.
Swiber’s dividend yield appears fairly meagre at 1.9% and the company also holds debt on its books. However, its bottom-line profits which have more than doubled in the last 5 years comfortably cover the interest repayments. Swiber is currently trading near its 52-week low.
Another Oilfield Services company trading below its book value is Chuan Hup Holdings (SGX: C33), which is priced at 30% below its book value. The company provides marine transportation services to the mining and energy sectors as well as managing a fleet of 15 offshore support vessels.
Whilst its Price-to-Earnings of 12 is closer to the market average than Swiber’s, the dividend yield of 3.4% is more attractive. Currently trading close to its 52 week high, Chuan Hup Holdings may prove less tempting to value investors than Swiber Holdings.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.