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Is This Oil & Gas Share A Bargain Now?

The eyes of bargain hunters usually gleam with excitement when they know that a share is currently at its 52-week low or when the company’s management team has been actively buying shares of the firm for their own personal accounts.

In particular, the latter condition may indicate an undervalued share price as insiders can at times be better equipped to understand the true value of a firm as compared to outside investors.

Keeping these in mind, let’s take a look at IEV Holdings Ltd (SGX: 5TN).

Introduction

IEV Holdings is an integrated engineering solutions provider for the offshore & marine industry. The firm provides a range of engineering solutions related to the installation of new facilities; the repair and maintenance of existing assets; and the eventual decommissioning of ageing structures.

The company operates under four different sectors, namely, the Offshore Engineering Sector, the Mobile Natural Gas Sector, the Exploration & Production Sector, and the Renewable Energy Sector.

In the Offshore Engineering Sector, IEV provides turnkey services to construct, repair, maintain, rejuvenate, and remove offshore oil and gas production facilities.

As for the next two sectors, as their names suggest, the company is involved in the exploration and production (E&P) of hydrocarbons and in the distribution of natural gas to customers without gas pipeline access.

Lastly, the Renewable Energy Sector is the conduit through which the company can “champion alternative and clean energy solutions.” In that space, the company’s first move was to start the construction of a rice husk biomass plant in the first quarter of 2014; the plant is expected to begin production in the first quarter of this year.

Consistent share buybacks and a 52-week low

Christopher Nghia Do, the President and CEO of the firm, has been busy snapping up shares of IEV since 17 November 2014, when the firm closed at S$0.16 per share.

From 17 November 2014 to 21 January 2015, Do’s stake in the firm has increased from 17.67% to 17.87%.

Given IEV’s oil & gas businesses, the rout in the price of oil (the commodity’s price has fallen by more than half since June 2014) has also resulted in sharp declines to the company’s share price. According to Yahoo Finance, IEV has seen its shares fall by some 57.2% over the past six months. At yesterday’s close of S$0.12 per share, IEV is just one cent away from its 52-week low of S$0.11.

The magnitude of the fall may have been the trigger for Do’s burst of purchases over the past two to three months.

A bargain… or is it?

Nonetheless, investors should never blindly follow the buying actions of anyone – not even that of a company’s management.

Yes, shares of the company have very likely been hurt by the fall in the price of oil. But the poor fundamentals of the firm may have played a part as well.

The company has been loss-making in both 2012 and 2013, although the situation seems to have improved a little in 2014; over the first nine months of that year, IEV had managed to earn a profit. Besides the lack of profits, IEV has also not been able to produce cash flow from its business – operating cash flow has been negative in 2012, 2013, and the first nine months of 2014.

Even when the price of oil was hovering around US$100 per barrel in 2012 and 2013, IEV has had trouble producing decent corporate results. With the price of oil now below US$50 per barrel, the operating environment has just become a lot tougher for the company. Bargain hunters whose investment theses rests on the potential of the firm to improve its business have to tread carefully.

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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 James Yeo doesn’t own shares in any companies mentioned.