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NRA Capital Pte Ltd

Written by: NRA Team

Thursday 9 Jul 2015

Atlantic Navigation – Press release

3+1 year contract for crew boat shows strength of the Middle East market

New vessel contract increases Atlantic Navigations fleet count to 17 vessels

Atlantic Navigation Holdings (ANH) won a tender from a Norwegian oil and gas company to provide a crew boat on a 3-year contract, with a 1 year extension option. The contract value of US$6.0m including the option period calls for ANH to purchase a new vessel for US$4.5m, inclusive of mobilization costs. The vessel will be deployed for service in the Oman offshore area by mid-August 2015.

That ANH was able to secure a new order contract is a positive, though not surprising, development. We have noted previously that the Middle East offshore sector is particularly healthy compared to offshore developments in other geographic locations, largely due to the lower cost of operations in the region. Lower costs of operations keep rig counts high, and the age of the rigs in turn require additional offshore services for maintenance and logistics support. While charter rate pressures are a point of concern globally, the Middle East has not had a collapse in charter or vessel utilization rates that have plagued other offshore markets. Beyond the cost of production advantages that the Middle East has which ensure offshore production levels remain high, the regulatory environment acts as a significant barrier to entry for new companies which wish to shift operations away from geographic markets currently under pressure. Taken together, these factors point to ANH operating in a lower market risk environment that allows it to weather the storm facing the oil markets currently.

The major point of note is that the turnaround time for the new contract is relatively fast, with revenue contributions already visible from 2H15 for ANH. We find that ANH has a healthy balance sheet with net gearing of 24.3% as of 1Q15 and positive revenue growth yoy. The cost of the crew boat, at US$4.5m is fair given the current market environment and the resale prices observed in the market. Along with the new platform supply vessel to be delivered to ANH in September 2015, we find it realistic for ANH to improve its 2H15 earnings.

Our view                                                                                                                                  

The issue for ANH is its low liquidity. With a free float of 20.8%, the volume being traded is insufficient for shareholders to realize value in the near term. Nevertheless, ANH is a good company to invest in for investors looking for less risky oil and offshore related companies. The stability of the Middle East offshore market, compared to other offshore markets, is evidenced by the continuing requirements for offshore support vessels.

ANH trades at 4.3x trailing 12 month PER, a discount compared to its 1-year historical 6.5x T12m PER. The low gearing, positive market sector and indications of revenue growth potential in 2H15  point to the strength of ANH 

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