The decline of the oil price over the past couple of years has finally caught up with Gulf Marine Services (LSE: GMS), a provider of self-elevating support vessels to the offshore industry.
Last month, Gulf Marine lowered its EBITDA guidance for 2016 to $100m-$110m from the $115m-$120m it had forecast in March. There was no further reduction to the guidance in the company’s half-year results today — something the market had perhaps feared — and the shares are up 8% at 46p, as I’m writing.
The table below shows how Gulf Marine thrived through 2015, despite the tough oil backdrop, and how trading has deteriorated in H1 2016 and is set to worsen markedly in H2.
| Revenue ($m) | EBITDA ($m) | |
| H2 2016 (est.) | 62-79* | 29-39** |
| H1 2016 | 110.4 | 70.7 |
| H2 2015 | 121.5 | 78.4 |
| H1 2015 | 98.2 | 60.1 |
* Based on company full-year EBITDA margin guidance of “in the high 50% range.” I’ve used 58%.
** Based on company full-year EBITDA guidance of $100m-$110m.
If Gulf Marine meets full-year guidance, which includes an EPS range of 14.5-15.5 cents, we’re looking at a bargain price-to-earnings ratio of about four.
However, net debt stood at $371.4m (plus finance lease obligations of $41.5m) at the half-year end, and the company expects this to rise to $395m (plus $40m) by the end of the year. This dwarfs Gulf’s market cap of around £160m ($210m), which is on the face of it, a major concern.
However, management expects net debt to begin falling next year, as a period of heavy capex comes to an end, and has shown its confidence in the financial outlook by maintaining the interim dividend today, which gives a running yield of 3.4%.
So, on one hand we have a deteriorating near-term trading and debt outlook, and, on the other, a management confident of riding it out, a very cheap earnings rating and a handy dividend yield. I see Gulf Marine as an attractive opportunity for investors looking for a stock at the higher end of the risk/reward spectrum.
Buy on a profit warning?
The market was less enamoured with today’s half-year results from PPHE Hotel Group (LSE: PPH). The shares dived 9% to 732p when the market opened, although they’ve recovered a little to 742p, as I’m writing.
The Park Plaza and art’otel group said that trading for 2016 remains in line with the board’s previous expectations. But it added: “Due to slightly delayed hotel openings, for which pre-opening expenses have been incurred without a significant amount of revenue contribution to offset such expenses, the Board expects that this timing difference may result in the Group’s results being behind market expectations.”
Revenue for the first half of the year was up 9.2% on the same period last year, but occupancy was down and EBITDA declined 7.4%. There were few bright spots among the group’s predominantly European operations, but the board is excited about a pipeline of renovation projects and new hotel openings.
Analyst forecasts ahead of today’s profit warning put the company on a P/E of 11 with a prospective dividend yield of 2.5%. But earnings downgrades will push the P/E up, and I’m taking a cautious view on the outlook for the group, particularly with the increased terrorist activity we’ve been seeing in Europe, because PPHE’s hotels are largely located in major gateway cities and regional centres.
