Lamprell - Into Recovery Mode

This article is a follow-up to the below:

http://theel1tetrader.blogspot.co.uk/2012/08/lamprell-plc-time-to-buy-in.html

Lamprell holders have seen their shares build in value over the last few weeks despite a relatively underwhelming set of results. Since the blog highlighted Lamprell in early August, the share price has risen from 86p to a closing price of 112p today equating to a neat 30% gain in less than a month.


Whilst the share is approaching overbought levels, there is still room for a small increase upon the current price, but I would then expect a short retrace back towards the upward trendline around 107p. On a more long-term timescale the recent share price movement confirms an underlying buying pressure and hints at it still being oversold from the recent drop.

A few pieces of news have been released since the last article:

• The completion of a jackup rig project on schedule and within budget.
• The buyer of the rig restored confidence in Lamprell through the following statement:

"Our relationship with Lamprell has been one of true partnership starting with the work that the Company has done for us on rig upgrades. Today, we are delighted to be marking the delivery of the first new build jackup rig built by the Group. We are confident that Lamprell will continue to support us in achieving our vision of becoming a regional symbol of excellence in drilling, work over and associated well services."

• The half-year report was released with the following important information:

1. FY losses of up to £10.8m
2. Secured a temporary waiver on bank loans until the end of the year when a longer term solution will be made
3. Revenue up substantially from $383.6m FY 2011 to $528.1m FY 2012
4. Swung to an operating loss of $33.8m
5. Interim Dividend scrapped
6. Cash and Bank balances of $134m as of June 2012
7. 'The Group's order book remains at an historically high level of US$ 1.5 billion and bid activity remains positive across all our main businesses'

• On the 6th September Lamprell announced a Joint Venture with a Saudi Arabian firm. This will strengthen Lamprell's brand in the Middle East
• HSBC upped Lamprell's target price to 220p/share, significantly higher than the current price

Through a long term view the shares still look decidedly undervalued, however, a multi-percent pullback is very likely. Perhaps the safe option is to reduce a position ahead of the next trading update as a precaution. The state of the markets which have improved over the last two days will ultimately determine the medium term picture for Lamprell.