Big contracts still beckon Lamprell

BUY

13/08/2010 Robert Tyerman

Nigel McCue, CEO of Lamprell, a leading provider of engineering services to the oil and gas industry, is one experienced industry hand who suspects BP’s traumatic rig disaster in the Gulf of Mexico could have long-term benefits for his company. He suggests that it will lead to tougher mandatory safety measures and features.

Registered in the Isle of Man but with its operational nerve centre in the United Arab Emirates, Lamprell, which floated on AIM in 2006 and moved to the Full List two years later, has won five major capital contracts so far this year. The company has established itself as a market leader both in rig refurbishment and, in a separate but related field, as a builder of wind farm installation vessels in the North Sea.

Recent contracts won by Lamprell include a new $317 million (£204 million) deal with the National Drilling Company of Abu Dhabi. The order is to build and supply two jack-up rigs for $158.5 million apiece, to be delivered in the second quarter of 2012. In addition, the company has the prospect of optional equipment orders worth $25.2 million.

The contract also gives National Drilling the option to order two more rigs, also worth $158.5 million each, with the same optional equipment prospects. All that could bring the total value to Lamprell of this new Abu Dhabi business to $684.4 million.

The National Drilling order comes helpfully after the group had to terminate a contract to build one such rig when the buyer, Riginvest, a private Norwegian group with backers including Greek ship owners, had to pull out for lack of finance. The Riginvest work can now be ‘flipped’ to National Drilling.

This order comes a month after Lamprell won a $129 million wind turbine vessel contract from Bermuda-based Seajacks. The contract is to design and build a state-of-the-art self-elevating and self-propelled offshore wind turbine installation vessel, to be called the Seajacks Zaratan, which Lamprell will build at its Hamriyah facility in Sharjah, United Arab Emirates, for delivery in 2012.

Lamprell argues that the Seajacks contract is significant because it demonstrates the company’s increasing role in the renewable energy market, which is less immediately dependent on trends in oil and gas prices than Lamprell’s traditional business. Back in February, Lamprell won a £200 million-plus contract from the Fred Olsen group for two wind turbine installation vessels, and McCue suggests that the market will continue to ‘expand rapidly as the offshore wind sector pursues its ambitious expansion plans’.

Lamprell has not been immune to the vicissitudes of the international oil rig and shipping markets. Profits surged from £22.5 million pre-tax in 2006 to £56 million in 2008 as turnover bounded from £220 million to £494 million over the same period, but last year Lamprell made only £19 million pre-tax on £283 million turnover; and its shares, which went from a flotation price of 195p in 2006 to 575p in 2008, fell below £1 briefly during the past year.

However, analysts believe that Lamprell can increase pre-tax profits to £32.8 million this year, with £41.2 million on the cards for 2011. McCue argues that the oil price will be steady at around $75 a barrel.

He sees attractive long-term prospects once the present overhang of capacity, from Korea and elsewhere, is worked through and points out that Lamprell, which is currently debt-free, is funding its £40 million new facility in the United Arab Emirates from its own resources. The company, which passed its dividend during the difficult patch, now intends to reinstate it at the rate of 40 per cent of distributable earnings.

Lamprell shares have rallied to nearly 280p. This still leaves plenty of scope for potential improvement over the medium to long term.

Tags: Deals & contracts, Full list, Growth Stocks, Undervalued

Sector: Oil & Gas Producers

Companies: Lamprell

Big contracts still beckon Lamprell

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