Thursday, March 15, 2012

Offshore Sector

Last week Ezra, an offshore service provider company raise fund through private placement of share at $1.10 to shore up their working capital as they venture more into subsea business and through the placement as announced yesterday Temasek Holdings has became a shareholder through deem interest in its subsidary of DBS Nominee.  Yesterday, Swiber, another offshore service provider company halt trading to announce of private placement of share at $0.635 to raise working capital.  Within a period of one week, 2 promising companies in the offshore service provider sector dip into equity market to raise capital and that is something an investor need to give a deep thought about it.

Short-term wise, without any doubt, the private placement news will cause their share price to retreat to around the placement price level due to fear of dilution but investors should look at the bigger picture for their actions instead.  Ezra according to its latest financial earning in January 2012, it has a backlog of over US$1.6 billion in its order book and lately has been gaining contracts in the subsea business where it sees rapid growth.  Swiber on the other hand in its February 2012 financial earning citing an order book of over US$1 billion and like Ezra has been winning contracts lately and it is also in the pipeline of bidding for more contracts.  Fundamentally, these 2 companies can be considered strong with their strong order books on hand and as they are not comparable to the bigger corporation like KepCorp or SembMar having strong cashflow, the raising funds for working capital in order to expand the company business is definitely not a surprising act.

Based on the actions by the 2 companies, investors might want to focus on the offshore sector as a whole, the prospect of the offshore sector.  As we know of, KepCorp and SembMar have been winning oil rigs contracts lately too and they are in position to bid and maybe perhaps winning further contracts from Petrbras and should the smaller companies like Ezra and Swiber are also getting the momentum of winning contracts, that said something about the offshore sector in general.  The growth prospect of the offshore sector is there and investors should start considering picking up the strong fundamental companies in the offshore sector while their price still at a relatively cheap level.  Apart from KepCorp and SembMar, others relatively strong fundamental offshore related stocks are STX OSV, Ezra, Swiber and Ezion.

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