LAM – Lamprell – Sky Or Bust

I had been reading about an unfortunate choice by an excellent stockpicker (infinitely better than me at picking stocks) that went pear-shaped today. It happens to the best.

I thought I’d submit my own Sky Or Bust stock. Selected for high reward/risk – and obviously not selected as a “bust” without a real, feasible, chance of “sky”.

LAM (Lamprell) is “engaged in the provision of diversified engineering and contracting products and services to the onshore and offshore oil and gas and renewables industry. The principal activities of the Company and its subsidiaries include the upgrade and refurbishment of offshore jackup rigs; fabrication; assembly and new build construction for the offshore oil and gas and renewable sector, including jackup rigs and liftboats; Floating Production, Storage and Offloading (FPSO) and other offshore and onshore structures, and oilfield engineering services, including the upgrade and refurbishment of land rigs.” And so on.

A string of profit warnings sent the company down 68% YTD. There’s delayed delayed deliveries and a whole host of other issues, plus there’s talk of possible bank covenant breaches. Someone counted them: apparently there were 4 profit warnings in 5 months. Sweet.

Sounds like I’ve lost my mind, right?

Maybe so, but consider this. Net debt is 22.7m, and net cashflow at the interim stage was 50.9m. Interest is covered 5.6X. The theory is that net debt is low in relation to cashflows and sales, so the theory goes that it’s probable that the covenant situation can be sorted out satisfactorily. It believes that it will have sufficient cashflow to fund its ongoing activities and debt repayments.

CEO Nigel McCue was coming on (it relates to the death of Scrooge, just in case you’re unaware of context). Peter Whitbread, a former Chief Executive, has been appointed as interim Chief Executive.

Chariman John Kennedy stated “After three months with the company I believe the fundamentals of the business continue to be sound and the order book and new contract pipeline remain strong”.

Lamprell cites its strengths to include long track record with a good reputation, experienced staff, and a state-of-the-art facility in Hamriyah, and facilities including fabrication space and deep water quayside berths. The Directors believe there is limited additional land and deep water quayside currently available in the Middle East region, which will act as a barrier to entry for any new competitors wishing to enter the market.

If you recall the BP oil spill disaster, its assets were assessed to be well above book value (it was something like 2X book value, if memory serves). LAM currently trades on a PBV of 0.72, so it seems reasonable to suppose that, like BP, its assets are valuable and worth well in excess of book. LAM has gearing of 7.6%, a PER of 4.2, ROE 15.6%.

Not one for widows and orphans, but I think this turkey might actually fly. We shall see. Enjoy!

Much kudos to ADVFN’s “Volvo”, which formed the basis of most of the contents of this post.

No position.

82.80p

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About mcturra2000

Computer programmer living in Scotland.
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