The share price of James Fisher & Sons (LSE:FSJ) collapsed on Monday following a disappointing trading update. The company continues to suffer from Covid-related woes, and its stock has yet to return to pre-pandemic levels. This depressed performance has led to the 12-month return coming in at a disheartening -62%. But are things as bad as they seem? Or is this actually a buying opportunity for my portfolio?
What just happened to the James Fisher share price?
James Fisher is an engineering services firm that specialises in marine-based operations for a variety of sectors including Oil & Gas, Transportation, and Renewable Energy. Looking at the latest earnings report, revenue for the most recent quarter came in 7.6% higher than a year ago. That’s obviously good news. Sadly, the positivity ends there.
Given the James Fisher share price crashed this week, I think it’s fair to say that investors were less than pleased to receive disappointing profit guidance from management. The company’s issued outlook for the full year of 2021 placed operating income between £27m and £32m. This range is firmly below analyst expectations of £35m, and when looking into the cause behind this underwhelming performance, I discovered an onslaught of bad news.
Firstly, its Fendercare ship-to-ship transfer business continues to deliver disappointing results, with more evidence emerging that a market shift is under way. Meanwhile, its JFD subsidiary, a specialist in underwater commercial and defence operations, has reached a stalemate in an ongoing £2m negotiation that is unlikely to be resolved until next year. At the same time, customers of the group’s marine Contracting, Decommissioning, and Nuclear businesses have begun delaying projects due to supply chain disruptions created by the pandemic. And on top of all that, James Fisher is struggling to collect a £2m outstanding debt from one of its customers in financial distress.
Needless to say, this is all quite problematic. So I’m not surprised to see shareholders jumping ship, causing the James Fisher share price to plummet in the process.
Can it recover?
As troubling as this latest report is, there is some room for some optimism. I think it’s worth remembering that the delays in projects are only temporary. And management expects the missing income will materialise next year. In the meantime, James Fisher’s pursuit into the renewable energy sector as a new growth prospect appears to be paying off. Its subsidiary EDS Group, which provides high-voltage engineering services, just signed several two-year multi-million-pound contracts with industry leaders. And there are still more deals of the same size on the table.
Overall, the long-term potential of this business doesn’t appear to be jeopardised, in my opinion. The group does have a big pile of debt that could create problems if profits don’t eventually recover. But for now, it seems to have sufficient liquidity to meet short-term obligations. And providing that management doesn’t have any more nasty surprises for shareholders, I believe the James Fisher share price can recover over the long term. Therefore, I am considering adding this business to my portfolio.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.