Lamprell - Familiar Territory

http://www.lamprell.com
This article is a follow-on from the below posts. For full context and information, read these articles first:
http://theel1tetrader.blogspot.co.uk/2012/08/lamprell-plc-time-to-buy-in.html
http://theel1tetrader.blogspot.co.uk/2012/09/lamprell-into-recovery-mode.html

The blog first highlighted Lamprell (LSE:LAM) at 86p/share in August after it was recovering from a profit warning. Following the tip, Lamprell enjoyed a gradual recovering, making an ultimate intra-day high of 125p equating to a healthy gain of ~45%. Included in the article was a note that holders may wish to reduce their holdings ahead of the following trading statement as a precaution. The reaction to the trading statement was a sharp fall. Lamprell's shares currently stand at 74.25p/share. The article seeks to examine Lamprell's current position.

The graph shows that despite recent movement downwards, Lamprell is still within a shallow uptrend. Whilst this still indicates positive future movements, a breakdown of this could see a ~65p level become the next target. The initial bounce following Lamprell's fourth profit warning of the year, also gives rise to the share being oversold and that an medium-term bounce is certainly possible as long as the markets stay afloat. Positive/Neutral trading updates should help boost the share price as a lot of the problems are well factored in leaving Lamprell with a much reduced and low market cap of just ~£193m. It is certainly a possible takeover target with the large order book it boasts. However, any continued decline in the global markets if the fiscal cliff is unresolved would likely lead to a better buy-in opportunity. In the absence of this and further disappointing updates, a target of 100p by year-end is feasible.

Courtesy of Panoramas
Since the September article there have been three news statements. The first of these concerned the very disappointing trading update that was released in early October.

In the Company's Trading Update of 26 July 2012 it was announced that the delivery of the Windcarrier 1 and 2 projects had been delayed. On 1 October 2012 Windcarrier 1, the Brave Tern, was delivered to Fred. Olsen. As a consequence of late delivery and other contract-related matters Lamprell has incurred further additional costs on both the Windcarrier 1 and Windcarrier 2 construction projects, which will adversely impact the forecast loss for the year ending 31 December 2012.

Along with this was a delay in client deliverables for a separate project. Thus the end result was a further deferral of the revenue and profit from 2012 and 2013 which ultimately acts as a profit warning. The positives to this is that any downside felt this year will balanced next year. Due to this, the loss for the FY2012 will be significantly more than previously expected (£7.5-£10.6m). External advisers have been appointed to examine the extent of the impact, but this has not yet been released.

Chairman John Kennedy commented, "Lamprell's position in the refurbishment market remains pre-eminent. 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. However, I am extremely disappointed in the need to make this latest trading update and feel that a refreshed management team will bring a more focused sense of delivery to all our stakeholders."

The update certainly shook investors, many who were probably confident that the company's nightmare 2012 had ended. Consequently, the share price tanked by well over 30%. At this point, confidence in Lamprell was completely shot and to an extent, it will be until a positive financial update indicating that Lamprell is back on track. The Q3 Interim Management Statement due prior to the 20th November should shed some light on the situation, and if positive would be an excellent buy-in opportunity. Alternatively, if the update is mixed and the impact of the delays are higher than what market sentiment suggests, then a re-evaluation of the company is required. It is important to recognise that the company's problems are unlikely to dissipate as quickly as they arose. Therefore a negative update may not be entirely representative of the road ahead. For FY2013 estimated earnings stand at 13 cents per share.

Courtesy of Jensimon7
To attempt to re-direct Lamprell, a number of board changes were voted through quickly after the trading update. CEO Nigel McCue stepped down from the board completely and both the CFO and COO would step down as soon as replacements are found. Former CEO Peter Whitbread who retired in 2009 would stand in as the interim CEO.

"The Board has stated that it feels a refreshed management team will bring a more focused sense of delivery to all our stakeholders and our search for new management in these key senior roles is now in train. I want to thank Nigel for his contribution to Lamprell during his six years at the company, both as a non-executive then as an executive director. I am pleased Peter is taking over on an interim basis and with his knowledge of the Company he will be able to hit the ground running, providing stability at this important time for the Company."

Aside from this the only other RNS concerned a reduction of holdings in Lamprell by Legg Mason. Their stake dropped below the 5% threshold.

Its worth looking back at points from the Half Year report in greater depth in light of the trading update. Only back in March did Lamprell release a surge in revenues by 127% to $1.15 billion along with a record bid pipeline of $5.2 billion. Lamprell is clearly a market leader in its service provision, so if they can skip over and rectify the past issues, then the shares are trading at an appreciable discount to the company's true worth. Its important to remember that, whilst a poor future FTSE performance would hurt the share price, the scarcity of hydrocarbons (particularly oil) should allow Lamprell to be less adversely affected by market downturns in comparison to more fragile industries such as chemicals. In addition, the problems seem to be mostly of their own making hence with better management should be rectifiable, especially with the motivation of the new management. To support this, the order book stands at $1.5 billion which represents a historical high for the company. The gearing ratio also dropped from 16-7%

Several broker targets have also been released in the last few months. Nomura have a 125p target, Citigroup - 100p, HSBC - 165p, Investec - 55p and JP Morgan - 35p. Clearly this is a huge range of target prices. With further bad news, there is a small chance that Investec's target may be met on a spike down, but JP Morgan's target price looks ridiculous as it would value the company at less than £100m assuming a constant number of shares.

All eyes are on the imminent IMS which will be a key pivot for the share price. A multi-percent movement should be expected in either direction. With the almost repetitive collapses of the share price, investors and traders alike should gain insight into the likely outcomes of the financial impact of the delays, banking covenant updates among other issues. The wisest approach to Lamprell's share would be to wait for the IMS and gauge future potential rather than taking positions beforehand. This way, any very negative news can be avoided. New management plus the implementation of cost-cutting measures could help Lamprell recover back up to more reasonable trading ranges.

15 comments:

  1. Certainly will be interestig to see what they release. gl everyone

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  2. good to see the back of the old management. looking to add to my stake here in due course

    good article

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  3. Good again! Perhaps look at magp

    Craig J

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  4. KMann,

    Legg Mason reduced their size of holding. As per early august they held 6% of shares as still shown on Lamprells website. However look for the key words of 'below 5%' in the latest holdings RNS.

    El1te

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    Replies
    1. Just double checked the rns again

      Situation previous to the triggering transaction = 10,054,900
      Resulting situation after the triggering transaction = 12,968,030
      is that an increase or decrease?

      have I misinterated the before and after statements?

      Happy for you to explain

      Delete
    2. Hi there,

      I have just checked bakc ont he RNS also and it appears somewhat confusing as you have mentionned. The holding has decreased to below 5% as is noted, but as you ahve shown, their current holding is an increase on some time before.

      What I would say is that their holding used to be 6% (in August) and they have not issued an RNS since. Their holding has dropped since August to below 5% thus the RNS, but their latest transaction (31st Oct) was to increase their holding. So overall they have reduced their stake, but as you mention, for one reason or another their latest transaction was to buy a few.

      El1te

      Delete
    3. Try this for an explanation ... and correct me on any point if wrong

      before the rights issue (200mil shares in issue) legg had a holding of 10054900, status recorded by rns as being above 5%.

      I understand There was a rights issue of 60 mill shares(now 260mil shares in issue).

      Now (after the rights issue 260mil shares) leg purchase more shares, but because the rns system has recalculated and refreshed it triggers an rns of less than 5% thus updating the new status to less than 5% even though the holding HAS increased. Its just the proportions have changed.

      Delete
    4. The rights issue was completed before H1 end 2011. It was in August 2012 that they had a 6% holding.
      http://www.lamprell.com/investors-centre/shareholders-centre/main-shareholders.aspx

      I would guess that there are some principles in place that a firm must either disclose their change of position after x days or when they have completed selling/buying. For example, Vidacos Nominees reduced their interests straight through 5% but only issued an RNS when their holding was ~1%. Equally, Schorders went from a holding of 5% straight to 10%.

      It does seem clear though that Legg reduced their overall position.

      Delete
    5. Agree at some point legg have reduced over time, but think it fair that you correct that the most recent holdings rns was a significant buy. Also Schroders most recent reported holdings is at around 15%.

      Thanks

      Delete
  5. I wanted to print off your article but was unable to do so.

    Have you put a block on printing it?

    ReplyDelete
    Replies
    1. Hi there,

      Right click is disabled to prevent copying. However, you should be able to print the article by pressing CTRL + P.

      El1te

      Delete
  6. Piled in £5k at 64p. Already showing a healthy profit!

    ReplyDelete
  7. Hi, how about a follow up blog now the results are out

    ReplyDelete
    Replies
    1. Hi there,

      I may do another blog on Lamprell in the near future, but doing one now may yield little extra information.

      El1te

      Delete