Excerpts from analyst's report

RHB Research analyst: Lee Yue Jer, CFA

Photo: www.offshoreenergytoday.com
At its results briefing, Ezra’s management surprised us by highlighting its target to return to paying dividends. Maintain TRADING BUY, with a SOP-based SGD0.33 TP (from SGD0.36, 154% upside).

After selling half the subsea business, its balance sheet is indeed looking healthier and the company should return to positive FCF this year. The USD67m tranche of debt to be refinanced by Mar 2016 is not large enough to warrant solvency concerns.

Return to positive free cash flow (FCF).Through a combination of lower capex (now that the Lewek Constellation has been delivered), better working capital controls, and targeting 10% lower cash overheads, we believe Ezra can return to a positive FCF position this year. We also estimate its net gearing to drop to its target 0.5-0.6x by FY16F/FY17F from 0.77x today (this figure includes the USD106m of perpetuals being redeemed as debt).

May be dividend-paying as soon as Aug 2016. In management’s words, Ezra is “going to return steady dividends going forward”. As the company’s cash flow stabilises and gearing falls, we believe this willingness will be combined with the ability to pay – prompting us to pencil in c.20% payout ratios for FY16F-18F.

150 1Lee Yuejer"To reflect the still-challenging operating environment, we take the conservative option of discounting the subsea sale value at 40% (from 20%) in our SOP, resulting in a lower SGD0.33 TP. Maintain TRADING BUY. Key risks are its execution and order win momentum." -- Lee Yue Jer, CFA

Only a USD67m debt tranche to refinance by Mar 2016. Ezra’s debt maturity profile is healthy – of the USD479m coming due within a year, USD412m are revolving cash facilities related to vessel, project and working capital purposes which we expect the banks to refinance.

There is only one USD67m of non-bank debt to either refinance or retire, which poses little solvency risk to the group. The next USD106m tranche of non-bank non-revolving debt will be due only three years later (see Figure 2). Market concerns about Ezra’s balance sheet appear overdone with the stock trading at 0.24x P/BV yet recording gains on vessel sales.

New industry records, company remains on track.  We highlight that Ezra’s flagship Lewek Constellation has set new industry records with a 632-tonne pipelay tension at sea trials, holding on to the pipe in c.2,200m of water.

Full report here.

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