Gulf Marine Services Share Discussion Threads

[dodge meister] 15/4/2016 10:00

There is some good analysis here (refreshing for a BB), just add my ten cents worth. Previously in the company presentation they provided the dates for contracts for each ship. My concern at the moment is that one small vessel does not seem to be under contract and another two may be out of contract this quarter (potentially 3 out of 8). The debt is manageable if the utilization rate stays up.

[robroy2000] 15/4/2016 08:08

Thanks Pete, it's always helpful to get a view from someone inside the industry and the bleak picture you paint is certainly reflected in the share price of GMS.

GMS recognizes that it will need to diversify into decommissioning and saw it's first decommissioning project last year as a significant milestone. The project appears to be progressing successfully and has been commended by the client. As you suggest the possibilities for 'big business' are attractive and GMS should be well positioned to take advantage. This is seen as an area of opportunity and I think we should sit in anticipation as well as hope. A chance for management to display their mettle.

[petes5] 14/4/2016 21:31

The problem is with this company is that its involved with offshore vessels in the oil industry. There will have to be a bigger and sustained raise in the oil price before any effect will be seen on the share price. Rig rates are declining still with most oil companies wanting even lower prices. More rigs are being stacked with the prospect of a lot more going the same way once contracts have run out.
For the offshore oil industry its very much doom and gloom and I cannot see any recovery for at least 2-3 years in the offshore sector. There are some who think it may never recover. Any rise to $50-60 will see fracking taking off again with the prospect of the tap being turned to full by Saudi.
I am a long term holder who should have know much better (work in drilling) but was hoping that this company would be more involved in decom of platforms which could be big business around the world and that is why I invested. I sit in hope.

[tintin82] 14/4/2016 19:26

Many thanks for sharing your detailed analysis Rob Roy, much appreciated.

[mick] 14/4/2016 19:00

robroy2000 - thank you for an excellent piece of analysis with which I concur. I have concluded that GMS is a long term hold and that it should benefit over time as the price of oil improves and it's debt burden reduces. The key positive for GMS is its ability to generate decent levels of cashflow.

Hopefully GMS will be in a happier place in 12 months time.

[robroy2000] 14/4/2016 16:21

The share price appears unmoved by the recent rally in oil prices. Whilst not surprised I am disappointed, this has proved to be a very poor investment for me. Has it been harshly treated and is it worth holding on to for a recovery?

Going by GMS own 2016 outlook EBITDA and EPS will be 15-20% and 25-30% lower respectively. Taking the lower end of these projections gives EBITDA of $52,324k and EPS of $0.1497. Dollar conversion rate of 1.42 equates to EBITDA of £36,847k and EPS of £0.1054, giving PE 5.36. On current market cap this appears very good value. So what's not to like?

Debt. On a current ratio based on 2015 figures GMS scores 1.1. Generally anything below 1 is a red flag, sailing close to the wind but acceptable. On a debt equity ratio GMS scores 1.18. No doubt the company is highly leveraged but the purpose of this leverage in terms of fleet expansion is clear. On interest rate coverage GMS scores 2.97 a figure below 2 should cause concern. These are of course figures for 2015, what happens in 2016? Well I've had to make some assumptions which could be easily challenged but are probably within an acceptable range. Current ratio falls to less than 1, debt equity ratio increases and interest rate coverage falls to 2. This is concerning and reflects the conditions within the sector at this time. I'm also concerned that in GMS risk assessment there seems to be no mention of interest rate risk.

Integrity. The profit warning given the day before results troubled me and the explanation given, although plausible, was less than convincing. GMS is still finding it's feet as a listed company and the market is not a forgiving place. Trust takes a long time to earn but can be quickly lost.

So negative, why remain a holder?

Patience has served me well in the past. I believe the sector will recover in the medium-term and take GMS with it. I'll be watching the debt situation closely but feel that it will peak this year. Cash flow remains high. GMS is a leader within it's field. I've contacted GMS and have been reassured by their swift and professional attitude. They have a plan. I don't believe this is a bad company.

AIMV

[imranawan] 06/4/2016 14:27

Thanks Eastbourne and for your thoughts. I have around 35-40 stocks, but am trying to cut this down to 20-25 stocks. I find it difficult to manage this many stocks alongside a job, and family commitments. Running a slightly more concentrated portfolio would help focus my funds on my best ideas.

With a p/folio of 30-40 stocks, at times I feel I'm running a tracker fund!

Sheikh - I hold AVAP and have done for the last 18 months. You're right that they've got a lot of debt, but you can't really value them on a PER basis (although their cheap even on this basis). You really need to value them on a NAV basis, and I believe they are trading at a discount to the NAV on the balance sheet.

The key to AVAP is how quickly they can increase the size of their fleet. They also have the tailwind of air travel which is growing so if they continue to increase their fleet size profits should also increase. Management have done it before although the CFO is a real salesman and too focused on the share price whenever I've seen him present at events in the UK.

Good luck with whatever you decide to do.

[dhadkan] 06/4/2016 14:23

Down graded by J.P.Morgan today. Time to buy I think.

[eastbourne1982] 06/4/2016 14:09

imranawan,

Whatever you do there will be good and bad points.

I'm not a big fan of stop losses so these days I tend to go in with lower amounts and hold a much larger portfolio of shares, for example if I buy these I will only buy around 2% of my total portfolio / funds value so even if I take take a massive hit, i.e. 50% it would only be the equivalent of 1% of my total portfolio, for me a 1% move is fairly typical in a day or two so it takes the fear out of each buy (to a certain extent).

Obviously it largely depends on how flexible your funds allow you to be and if you are relatively young it's tricky finding the balancing act.

[sheikh al utrati] 06/4/2016 14:06

It was my only entry Imran. I had this share on my radar before but was put off by the debt.. But at 70s I just couldn't resist.. I have AVAP on my radar as well... sort of similar model, looks good value overall but again - chunky debt...I think my GMS adventure will make me more cautious with that...

[tintin82] 06/4/2016 14:04

Very wise words imran! If I had set a 30% stop loss I would br in a much much better position. And as you say, we emotionally tend to support our investment, even when it goes wrong. Somr of my early mistakes made me exercise more diversification so this is actually my only oul related stock, and only 7% of my portfolio at purchase price, now about 3%.

[imranawan] 06/4/2016 13:57

Thanks for your comments Eastbourne and tintin.

Tintin - I definitely agree that one should always ask that if you had the option of investing now, would they do so. Unfortunately for me the answer would be no in GMS at the present time given the debt pile, and price of oil and the chart.

I've been investing for 2.5 years with mixed success but the more I invest the more I am coming around to the idea of stop losses to preserve your capital and to take the emotion out of investing. When I haven't used a stop on a stock invariably I look for areas of support further down on a chart. Going forward for me at least I think I need to be more honest with myself about my weaknesses in relation to investing which is cutting losers and have started to employ stoplosses when investing. Sure you might get stopped out on volatility on some occasions, but on others they will help you preserve capital. When I look at where I've gone wrong its about minimising losses!

[tintin82] 06/4/2016 13:43

Agreed, director buys would be nice to see. Level of debt was always the risk with this, but the cash generation allayed my fears at the time. That was obviously before the drop in oil. Now debt is of course more pronounced, however IMO the price is so depressed that if I were a new investor I would prob consider taking a position, hence why I am not giving up just yet.

[eastbourne1982] 06/4/2016 13:34

Obviously you only know if you are right or wrong after the event, you could still be right, the number of times I have been tempted by something that looks cheap but haven't bought and two weeks later the share price is up 25 - 30%, you win some and lose some (for a while at least).

I was tempted by these this morning at 58.25 but haven't pulled the trigger yet, the chart is dreadful and the debt pile clearly unsettles investors.

The amazing thing is for the share price to get back to the level it was just 6 - 8 weeks ago requires a 50% increase.

[imranawan] 06/4/2016 13:29

Good luck tintin and Sheikh. Out of interest Shiekh did you top up in the 70's or was that your initial purchase? My original purchase was much higher. I guess the market doesn't like the level of debt on the balance sheet, and this is now priced in I guess.

I think the main mistake I made was not selling out in November when they issued an update in November alluding to margins coming under pressure for contracts coming up for renewal. This was the first time the tone within their RNS's changed.

It would be nice to see some of the directors buying some meaningful amounts of stock as opposed to the LTIP they announced shortly after the full year results.

[sheikh al utrati] 06/4/2016 13:15

I wish I had done the same Imran.. I was convinced I got in at the bottom when it was in 70s, but how wrong I was.. End of each year I swear to myself I will never go against a trend and here I go...Definitely not averaging down though...

[tintin82] 06/4/2016 12:59

As long as this continues to generate cash and have the ability to pay down the debt then I see no problem, only opportunity. Although I don't have the nerve to buy more!

[imranawan] 06/4/2016 12:54

I'm not sure how much lower it can or will go Sheikh. I agree it looks cheap based on a PER, but I guess the market doesn't like the level of debt. I sold out a few weeks ago, for a hefty loss, as I couldn't see it recovering in the short-term.

GLAH.

[sheikh al utrati] 06/4/2016 12:30

How much lower could this get?? Fair enough, they have chunky debt, but with forward PE below 4 I just don't get it... It is a real business and generates money ffs...

[trident5] 30/3/2016 21:21

Aren't those Bloomberg figures very similar to Gulf's own predictions which appeared in their recently published accounts.

[tintin82] 30/3/2016 20:34

Seadrill clearly in a bad way being an exploration driller.

GMS is making lots of cash. Yes a debt load, but also making loads of cash hence their ability to finance.

[pugugly] 30/3/2016 17:37

Bloomberg today:-

"Falling demand for rig services is forecast to reduce sales at the world’s largest offshore contractors by 25 percent this year and at least 10 percent in 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove."



Article is about Seadrill but general climate very applicable here - Especially given GMS level of debt. Further dilution and further to fall ?

GMS quote 65/66 at time of posting

[koolio] 24/3/2016 13:39

There is only one thing putting me off buying GMS as they do look under priced and oversold. They have a very, short client list, which is my concern that I'm sure the IC has highlighted. It is hard for me to get a copy of IC in this country, if anyone can paste a link or summary I would be grateful.

[tintin82] 24/3/2016 13:00

This weeks cover feature in IC is oil survivors. Not suprisingly GMS featured, 'totally oversold'.

[tintin82] 24/3/2016 10:02

All the best Imram, always a tough choice as to when to sell. Personally I think many fears have been allayed with the mass of information released over the last few days. I think the upside is much more than the down.