The oil and gas sector has been a difficult place to be for investors over the past year. With the price of oil falling by more than half from its peak in mid-2014, many oil-related companies in Singapore have seen both their shares and business suffer. A good (and extreme) example would be oil and gas services provider Ezra Holdings Limited (SGX: 5DN). It clocked a loss of US$3 million in the quarter ended 31 May 2015, a sharp reversal from the profit of US$8.3 million that was seen a year ago; Ezra’s shares have also fallen by close to 90%…
The oil and gas sector has been a difficult place to be for investors over the past year.
With the price of oil falling by more than half from its peak in mid-2014, many oil-related companies in Singapore have seen both their shares and business suffer.
A good (and extreme) example would be oil and gas services provider Ezra Holdings Limited (SGX: 5DN). It clocked a loss of US$3 million in the quarter ended 31 May 2015, a sharp reversal from the profit of US$8.3 million that was seen a year ago; Ezra’s shares have also fallen by close to 90% in price from where they were 12 months ago.
Yet, these developments have not deterred an oil and gas-related outfit from seeking an initial public offering (IPO) here.
Investors, meet NauticAWT Limited, a local company that focuses on providing subsurface, subsea, and surface facilities engineering services. The company, with 11 offices globally, also has business interests dealing with the exploration, development, and refurbishments of oil and gas fields.
NauticAWT’s shares will start trading on the Catalist board tomorrow. Here are three things you need to know about the company.
1. Impressive past results
From 2012 to 2014, NauticAWT’s revenue had grown at an impressive compounded annual rate of 25.7%. The top-line growth has more than made its way to the bottom-line judging by how the firm’s profit had spiked by an even more impressive 82.3% per year over the same period.
NauticAWT’s still a small company, with revenue and profit of just S$21.3 million and US$4.3 million, respectively, in 2014.
2. A questionable IPO?
NauticAWT’s listing will raise only a tiny sum of S$5.6 million. Yet, half of the proceeds have to be used to pay for the expenses related to the listing. In other words, NauticAWT only has S$2.8 million in net proceeds to play with through the listing.
This seems like a tiny amount of cash to raise for a company that had US$3.4 million in cash on its balance sheet at end-2014 and just US$3.07 million in total borrowings. It seems that NauticAWT would have been able to obtain additional bank loans or access the bond market if it really needed cash for expansion.
Given all these, it’s unclear why the firm thinks there’s a need for it to go public (and open its business to the glaring eye of the investing community) at a time when the oil and gas sector is weak.
3. Undemanding valuation
NauticAWT’s offering price for its shares is S$0.20. The net asset value per share of the company, after adjusting for the IPO proceeds, is around 8.16 Singapore cents. That would give the firm a price-to-book ratio of 2.45. That isn’t too low.
But, NauticAWT’s actually trading at just 5 times its adjusted earnings in 2014. That does not look like a demanding valuation, though there’s an argument to be made that this may not actually be cheap given the weak outlook for the oil and gas sector.
Our stock market in Singapore is no stranger to companies providing services to the oil and gas sector. The IPO of NauticAWT adds another company to the list.
The valuation of the company seems undemanding and it has a great track record over the past three years. But, given the weak market outlook in the oil and gas sector and the wide choice of investments for investors in the sector and beyond, will NauticAWT be special enough to stand out? Only time will tell.
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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 writer Stanley Lim doesn't own shares in any companies mentioned.