Lamprell Share Discussion Threads

[plunger2] 12/8/2014 08:00

Well this was a very necessary building block and with the bonding in place there are no constraints now in bidding for work.
My preference would be to see (a) new contract(s) firstly before any mention of dividends.
I certainly expect dividends in 2015; if anything comes before that I would be delighted. I imagine the share price would be even more delighted!

JMHO

[srpactive] 12/8/2014 07:55

With the new facility in place, and the facility B is
now cleared I presume, does anyone envisage a resumption of the dividend?

tia

regards

active

[skinny] 12/8/2014 07:07

Lamprell (ticker: LAM), a leading provider of diversified engineering and contracting services to the onshore and offshore oil & gas and renewable energy industries, is pleased to announce that, further to its announcement on 16 May 2014 that the Group had signed a commitment letter and detailed heads of terms in respect of a new secured banking arrangement, yesterday it signed a definitive agreement with the lenders for the syndicated facility.

Drawdown is expected to take place shortly. The agreement remains subject to certain conditions subsequent which Lamprell anticipates being satisfied in the next few weeks. The new arrangements will replace the Group's existing funded facilities with a US$350 million facility, comprising a US$ 100 million term loan, US$ 50 million for general working capital purposes and US$ 200 million of working capital for project financing. In addition, the lending banks have agreed to arrange a committed US$ 250 million bonding facility which may be used by the Group for project bonding requirements in connection with new contract awards.

[loldemort] 11/8/2014 23:28

What on earth are all those one-word posts from Todismypal all about? I can feel a bit of paranoia coming on!

[jimjones1] 08/8/2014 16:49

Just wanted to say a HUGE thank you to everyone who has helped me out so far.

This will be my final post (plea)! I just need a few more complete questionnaires so if you wish to take part please follow the link below. It will only take 2-3 minutes of your time.



Just in case you didn't catch my post earlier this week and wonder what this is all about, I am doing a master's thesis on communications within online financial communities. This questionnaire will be a source of my data.

Of course I am more than willing to share the results of the study with anyone who is interested.

Thanks again for your help.



P.S. If you have any questions, please feel free to contact me at jaw73(at)aber.ac.uk.

I confirm that all responses remain strictly ANONYMOUS and that no personal information with be associated with your responses. This study is purely for research purposes with no commercial gain to myself (unfortunately!)

[meijiman] 08/8/2014 14:50

my view would be to sit out August and wait for better market conditions. The various geo -political issues might also look better in a few weeks time. But as you know that could be completely the wrong advice!

[plunger2] 06/8/2014 08:06

Tod - the LAM poster on LSE board looks to be the same one who called it accurately before. So here's hoping.
O/T I concur totally with your AFR comments; happily we've both done well there previously.

GLA

[plunger2] 05/8/2014 16:47

Tod - if you nip over to the LAM board on the LSE thread you'll find an optimistic poster who was right before. He's hopeful of imminent contracts from our Jim. We'll keep our fingers crossed.
O/T - the turmoil at AFR may be a buying opportunity; I count myself lucky to be uninvested there. However I'm not man enough to return even in the 90s pending further clarification. I'm worried that a bad situation could yet be worse. No BOD suspends its 2 top people without serious cause for concern; IMO the price has not over reacted.

JMHO

[plunger2] 28/7/2014 14:59

Thanks durby.

Good stuff from Nomura. Glad to see they even looked at break up value.
From the LAM website it looks like the Lamprell family and the 5 big instis own 71%+ here - so any prospective takeover could be done in hours rather than weeks:



Not that I expect or want any t/o just yet.
While during this silly season things could be quiet pending news, next time we start to rev up the move could be a good one.

GLA JMHO

[alter ego] 28/7/2014 12:55

thanks durby, very interesting.

[durby] 28/7/2014 10:18

Here's the Nomura note (excludes tables / diagrams):

Lamprell: Buy the restructuring; TP raised to 185p
Industrial logic: restructuring of portfolio

• De-risking of backlog and a return to strong execution. Following a change in
management in 2013, Lamprell has taken significant steps to strengthen its project execution. The company has managed to deliver the remaining newbuild jackup units to National Drilling Company (NDC) on schedule and on budget. Despite the losses on its legacy WindCarrier projects, the focus on delivery of existing work and a repositioning of the business has resulted in a return to profitability. The company has seven major projects scheduled for delivery in 2014 and we are confident of its ability to deliver these.

• New capital structure drives stronger more efficient balance sheet. In July-August 2013, Lamprell refinanced its debt facilities with definitive agreements from five core lending banks for a new arrangement of USD 181m at an average interest rate of 6.7% (commitment till June 2016). The new facility brought in a more suitable covenant package, including gross debt to EBITDA, interest cover, net worth and annual capex metrics. In March this year, management sold INSPEC for USD 66.2m, part of the proceeds of which is expected to be used to pay down a substantial portion of the high cost portion of its debt. In addition, it also highlighted its focus on reviewing certain service businesses which do not form part of its core strategy.

• In May, Lamprell refinanced its debt and increased its funding facilities from
USD 131.5m to USD 350m (fully underwritten) and announced a rights issue, which will raise gross proceeds of cGBP 71.6m (USD 120.3m). That should help reduce like-forlike funding costs and bonding fees, provide funding for productivity and efficiency investment and help Lamprell access a bigger share of the rig order market with Tier 1 clients who want financing ability (previously, Lamprell was not able to bid as its balance sheet did not meet their financing criteria).

• Operational efficiency and cost reduction should improve margin and enhance
operational gearing – we calculate SG&A/revenue will fall from 9% in 2014 to 7%
by 2016 (historical US OFS average 6.2%). We highlight a number of key operational changes that should help drive cost savings and improve productivity:

– Welding process – Lamprell uses a batch process to weld materials together, which is time-intensive and inefficient given the workers have to reset the process regularly and stop/start. Applying a continuous process universally across its yards (it does exist already, but to a limited degree) should more than double welding productivity and the benefits should be come through over the next few months (cost is cUSD 1m).

– Power efficiency – Lamprell's yards run on a large number of small generators,
which means energy costs are disproportionately high. By investing in large
generators that can be tapped into a fixed grid, Lamprell can save materially on fuel costs. Given this is a fairly complex task that will require a material investment (up to USD 15m), it will take between 12-24 months.

– Semi-automation of component manufacturing reduces man-hour costs. The
man-hour intensity of construction is predominantly in assembling the components
which are in turn required for manufacturing a rig. Building the parts is cost/time intensive and greater automation improves the speed with which this is done as well as lower the labour cost. Lamprell operates at current range of 100-150 manhours/ tonne and by investing in panel lines and other automated equipment it can reduce this to circa 50 man-hours/tonne. The capex required will be cUSD 12m and the benefits should come through within 6-12 months.

– A greater proportion of low cost labour from South-East Asia vs ex-pats.
Lamprell will leverage its location in the UAE and proximity to India to employ a larger number of cheap engineers that can be trained in its facility to ensure quality control. New management highlighted in its recent IMS update that labour costs had risen over the years owing to a greater number of unnecessary ex-pats, some of which can be easily replaced with cheaper local resource.

Key growth drivers: upgrading and replacing of old jack-up rigs, offshore construction (greater standardisation in the industry should drive more modular work) and rig refurbishment in the Middle East as rig counts rise

(1) Industry bullish on jack-ups, new supply expected to drive rig retirements. Management commentary from 1Q14 earnings call of five leading offshore drillers (32%cumulative share of the global JU fleet) on the jack-up market was quite positive, as shown in Figure 69 below. Even as the jack-up industry experiences strong capacity growth in the 2H14-16 period, demand for high-spec JUs is expected to be maintained as older lower-spec rigs retire.

(2) Fleet renewal expected to drive new orders as older rigs retire...
Based on data from ODS Petrodata, our Singapore capital goods team estimates that 73 jackups are already over 35 years of age while as many as 185 rigs or 36% of the global jackup fleet will be over 35 years old in the next three years (Fig. 71, for a detailed analysis of the global jackup market, please see Jackups – bright spot in offshore and marine). Despite strong jackup deliveries in the recent years, the average age of the global jackup fleet remains high at nearly 20 years. Some 128 new JUs are scheduled to be delivered across 2H14-16 implying a 6.5% CAGR during the period. We think that jack-up fleet growth will be affected by quality issues as the bulk of new supply is being built in China. Moreover, given most of these rigs were ordered by speculators and not drillers, we believe these rigs will face quality/environmental issues when they are leased out to oil and gas companies and premium drillers are unlikely to purchase them.

(3) Asia competition not as threatening as it seems – Lamprell differentiates in quality vs Chinese yards Lamprell prices its newbuild rigs cheaper than EU (eg, Aker, Hereema and Kvaerner), Korean and Singaporean yards owing to its lower cost base in the UAE and, typically, only the Chinese will underbid the company consistently. However, as discussed above, issues and delays in rig delivery have been a recurring theme among Chinese yards. We show this in Fig. 73. We think Lamprell's strong record for executing newbuilds successfully should differentiate it vs the Chinese yards. Given the performance of the latter, we expect international drillers to choose quality and safety over price. This is best exemplified by the recent Ensco tender that was bid very competitively by the Chinese yet awarded to Lamprell.


Additional scope for M&A/restructuring: break-up of company worth 179p, 22% premium to current shares

• Assets we have identified that could be carved out and where the industrial logic is supportive: rig construction and refurbishment yards for offshore E&C.
Although these assets are core to the portfolio, it is possible that the company could divest one or indeed all of its fabrication yards in UAE, Saudi Arabia and Kuwait, which includes 2.2km of quayside. Less tangible but important are Lamprell's strong relationships with NOCs in the Middle East as well as several western operators (eg, Nexen, Ensco), strategic local content in the region and access to quayside. It also has expertise in engineering and construction of rigs (newbuild/refurbishment)/LNG modules/FPSOs/Windfarm offshore facilities. See Figs. 42 and 43 for portfolio description, detailed M&A outlook and Appendix E for a break-up calculation.

• Possible buyers of assets: rig construction and refurbishment yards for offshore E&C: Aker, Hereema, Kvaerner, O&G Industries, Dragados, Sempcorp Marine, Keppel, China Merchant Heavy, Dalian Shipbuilding, Shanghai Waigaoqiao and Yantai CIMC Raffles, NPCC (UAE EPC contractor), Dubai Docks, McDermott, Bechtel, COSL, Sinopec Engg, Daewoo, CNPC OFS.

• Possible buyers/merger wholesale parties: Lamprell has undergone major
restructuring following its execution problems and differentiates itself with its strong reputation for quality in offshore construction. Potential interested parties where the industrial logic makes sense could include: Aker, Kvaerner, Dubai, Docks, O&G Industries, Sembcorp Marine, Keppel, Dalian Shipbuilding, China Merchant Heavy, McDermott, Bechtel.

Key EPS changes; we raise our 2014E/15E EPS by 3%/9% leaving us 9%/11% above consensus
• The key drivers of margin improvement over the medium term will likely be: 1) the change in business mix as the company does more work related to offshore
construction and rig refurbishment (typically higher margin vs newbuild); 2) cost savings as the aforementioned initiatives take hold; and 3) improved efficiencies resulting from renewed investment in equipment and advanced processes. We forecast the EBITDA margin to improve from 8.5% in 2014 to 9.5% in 2015 and 10.6% by 2016 (we expect the benefits of the changed business model on margin to be back-end loaded).

• Driven by the recent new orders and our assumption of a higher order intake as the company accesses a larger more diversified pipeline, we forecast revenues to rise from USD 1,032m in 2014 to USD 1,101m in 2016 and net margins to return back to 7.5% in 2016 (2014E: 5.0%, five-year peak in 2010: 8.3%).
Valuation – TP raised to 185p from 135p

• We believe Lamprell should trade in line (previously: 30% discount) with our sector target P/E multiple of 9x and EV/DACF of 6.3x, which drives our implied P/E and EV/DACF of 110p and 217p, respectively. When averaged with our DCF of 224p, we get our new TP of 185p, with an upside of 26%.

[owenski] 27/7/2014 21:05

I think this will come good, the business is doing all the right things.

[durby] 27/7/2014 18:10

Read a Nomura research note on Lamprell from late June 2014 (post rights) last week. Target price raised to 185p with a Buy rating. The bits I found interesting are (a) the Chinese rig building industry has not been able to deliver rigs on time - most rigs saw many months delays to completion - the research note even provided a table with the list of rigs and delays; (b) it listed four areas where Lamprell is working to improve operational efficiency - and the research note was quite positive about this - was quite an interesting read.

Can't post the whole document, but will see if I can provide an extract of the relevant sections (don't have the document on this laptop - so will have to wait for another time).

[scobak] 27/7/2014 17:54

Thank you Tod's pal. How I agree. Lets get back to making an income.

[scobak] 27/7/2014 16:32

Those who set themselves up as a target should not be surprised or disappointed when the target is struck. Does 'you deserve it' really help in any way? Best get rid of that bitter energy and enjoy a more vituous life. You may find that helps to enhance your life and stop people responding to your silly comments.