Companies: SPH   

Seascope Shipping had a rough old time in 1999, but all the macroeconomic indicators seem once again to be pointing in the right direction for this broking and shipping suppport group.

Recommended back in the July/August 1998 edition at 264p, shares subsequently felt the pressure of two profit warnings and the sudden resignation of chief executive Duncan Hill.

Boasting a strengthened executive team, a note of optimism has returned to Seascope, and market sentiment seems set to follow.

The high oil prices, which followed a sustained slump in value, proved something of a double-edged sword. The oil production constraints imposed by Opec hit demand for oil transportation and, therefore, its service as an intermediary between oil companies and tanker owners. Yet offshore exploration outfits were gauging the sustainability of prices before stepping up operations and using Seascope's support services.

However, with oil prices at post-Gulf War highs and the recent report highlighting inventory shortages in the US, there is talk of Opec restrictions being loosened. Moreover, the prolonged buoyancy in oil prices has sparked off renewed exploration activity in the North Sea.

According to analyst Russell Kerr at Beeson Gregory, Seascope continues to be 'a high-yielding stock with capital growth thrown in, and a strong balance sheet'. Indeed, despite last year's turbulence, management maintained the 15p dividend.

Kerr rates Seascope 'as cheap as chips' and expects a signficant re-rating as the group's recovery becomes more apparent. He forecasts pre-tax profits of £2.8 million (£2 million), giving earnings per share of 25p. Kerr expects to upgrade his forecast for 2001 which currently puts the group on profits of £3.4 million and an EPS of 28.6p.

Investors who did not sell out as shares fell through the stop loss should keep holding. Others might be tempted to buy into this stock which, having risen 11 per cent today, still trades on a lowly prospective p/e of 8.1. It is a cyclical business with a choppy profit stream, but the fundamentals look good.