Australia | May 12 2010
By Chris Shaw
Yesterday it was Macquarie and JP Morgan initiating coverage on service vessel provider Miclyn Express Offshore (see: Buy Ratings For Miclyn, FNArena, 11/5/10) and today Deutsche Bank has joined the list, commencing coverage on the stock with a similarly positive Buy rating.
Deutsche suggests Miclyn offers significant upside potential via the combination of exposure to the buoyant Western Australian oil and gas sector and the ability to capitalise on growth opportunities via a strong balance sheet.
The recent acquisition of Samson should help earnings receive a boost in FY11 in Deutsche's view, as should an expected recovery in utilisation rates and a full period of contributions from eight new vessels delivered in the first half of 2010. These vessels are generating higher charter rates than the fleet average.
Deutsche expects Miclyn will comfortably post low teens earnings growth post FY11, with risk to this estimate to the upside in the broker's view. New contracts would be a catalyst to better than expected performance.
The other potential source of upside according to Deutsche is further fleet growth, as on its numbers cash flows in FY11 should allow for growth capex of around $60 million, which compares to a current forecast of $40 million. This is in addition to Miclyn's existing balance sheet capacity.
The solid earnings growth outlook, with Deutsche forecasting earnings per share (EPS) of 12c this year, 21c in FY11 and 23c in FY12, is also of a higher quality than that of its peers according to the broker.
This reflects a combination of longer-term contracts at typically higher charter rates. According to Deutsche this offers Miclyn some protection from oversupply issues in the sector and should deliver the expected improvement in utilisation rates.
Based on its earnings forecasts Deutsche Bank has set its price target for Miclyn at $1.85, which is below Macquarie's $2.25 target and JP Morgan at $2.16. Deutsche notes the share price has declined by 16% since the stock listed earlier this year at $1.90, this weakness improving the value on offer and supporting its Buy rating.
Shares in Miclyn today are slightly weaker and as at 11.30am the stock was down 2c at $1.60. This compares to a range of $1.49 to $1.95 and implies around 30% upside to the average price target according to the FNArena database of $2.09.
