Lamprell
Lamprell – Poised to gush on full listing
…After obtaining the necessary approvals Lamprell moved from the alternative investment market (AIM) to the main market on the 6th November, which should enhance the group’s investor visibility and increase liquidity.
As suggested last week the FTSE has continued it’s descent from recent resistance of 4600.
As can be seen from the above chart of the FTSE 100 the index has fallen almost 12% from key resistance of 4600 experienced last week.
Mounting anxiety about global growth has weighed heavily on the market, with the mining and energy sectors rapidly unwinding much of the gains witnessed over recent weeks.
However, the recent rally put a temporary end to the short term down trend of lower lows and lower highs and as the relative strength index (RSI) has continued to strengthen and diverge away from the FTSE, it suggests there are still several value buyers willing to support this market on any weakness.
With this in mind, I am inclined to suggest that the bulls will naturally attempt to support the market as the index nears support at 4000 and the October lows are likely to hold in the short term. However, the recent high and key resistance at 4600 is likely to limit any strength, which could leave the FTSE range bound between 4000 and 4600 in coming weeks.
Renewed global recession concerns have caused commodity prices to fall rapidly, as demand fears escalate and producers begin cutting output. As a result, Brent crude oil has fallen sharply over recent months.
As can be seen from the above chart of Brent crude oil the price of a barrel has fallen over 60% from the highs of $147 reached in July 2008.
Technical analysis of the chart shows that oil prices are nearing the long term trend line that has been in place since November 2001. This also coincides with the recent low and psychological level of $50 a barrel, which should offer support for the declining oil price.
As a result of the recent weakness in oil, the oil equipment services and distribution sector has fallen around 40% in the past 3 months and if energy prices stabilise there could be some excellent value on offer to investors in this sector.
A related stock I have been monitoring is Lamprell (epic: LAM), which is a market leader in providing specialised services to the offshore oil and gas industry in Dubai and Thailand.
The share price has fallen around 75% from the highs of 580p experienced in June 2008, which means they are now trading on a forward PE of about 4x at these depressed levels.
Interim results from the company on the 29th September were ahead of analyst expectations and the outlook is extremely positive.
The order book, which gives visibility well into 2010, has risen to $818 million from $550 million last year and the completion of new facilities in the Gulf will add considerable land and quayside to the business.
This will enable Lamprell to increase jack-up capacity, service deep and shallow water rigs and facilitate larger contract wins going forwards. Furthermore, expansion plans in Thailand will provide additional growth opportunities in 2009, with revenues expected in early 2009 from this region. Therefore, earnings estimates have actually risen by 5-6% recently.
The company is in an excellent financial position, with around £100 million cash in the bank, no debt and they pay no tax, which puts them at a comparative advantage to competitors who may be suffering from the problems of poor credit markets.
Additionally, after obtaining the necessary approvals Lamprell moved from the alternative investment market (AIM) to the main market on the 6th November, which should enhance the group’s investor visibility and increase liquidity.
As companies find it harder to get financing there is a risk that the number of expensive $100 million plus projects could slow going into 2010. However, many analysts also argue that the company’s geographic location means they have good exposure to more stable national oil spend and should make them relatively well positioned to withstand any weakness in global demand.
Furthermore, Lamprell reassured the market on the 4th November, by stating that its customers are confident they can secure cash to fund planned projects and they are yet to see any weakening in demand for its services. No projects have been delayed or cancelled.
The recent director buying and institutional investors raising their stakes in the company at these depressed levels supports this.
The shares of Lamprell floated at 195p in October 2006. After steadily increasing to a high of 580p in June 2008 they have fallen over 75% in the past six months.
After breaking all support levels the shares have begun to stabilise since trading a double bottom of 111p in October. A rise in the RSI has provided some buying support for the company and suggests the momentum behind the buying is building.
If we combine our earlier analysis of the FTSE and oil prices, with the exceedingly strong fundamentals discussed about Lamprell, I am inclined to suggest the shares are oversold at these levels. Now that the technicals have found support at 111p I believe this will give the shares a base for an up-trend to build on.
At the time of writing the share price is 143.5p and my short term opinion is positive. Near term targets are seen at 154.25p, 162.5p and 174p. I shall set a stop loss on the trade at 134.25p.
This report was written by Mark Allen – Head of derivatives at Simple Investments Stockbrokers. The writer does not hold a position in Lamprell. The material in this report has come from Fidessa, Share Scope and Lamprell’s corporate website.
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