Plant Offshore Group - an amazing start to life on AIM, which is a bit of a mystery to me!
The meteoric rise in the share price of Plant Offshore Group (POGL) this week is a bit of a mystery to me. You could say it’s sour grapes as I had an opportunity to participate in the IPO but didn’t take it up-it was a valuation thing!
The group floated at 12p at the beginning the week and at the close today they were trading at c19p-quite a return! Volumes weren’t great but it’s the perception.
POGL originally wanted to raise £2.6m at a prospective Price Earnings ratio of approximately 12 times (2007 estimates), giving them an initial post-IPO market capitalisation of about £21.5m. It now stands at £32m so assuming the estimates remain as they were it stands on nearly 18x 2007 estimates and c15x 2008 estimates.
Perhaps I am missing something and further contracts have been nailed in the interim, however, they still have to deliver on these. The contract award is surely only a small part of the jigsaw, just ask Global Marine!
Despite this (and my sour grapes!) I’m still not sure why a Malaysian company, with Malay clients needs to come to AIM to raise a paltry £2.6m. But we do seem to see this time and time again.
The numbers look compelling but the suggested valuation just doesn’t stack up for me as it is based on a huge step change in the business from 2005 to 2006. There are obviously some massive operational risks with regard to this and one should allow for the potential of a hiccup or two, especially with a small group who has never undertaken work of this magnitude.
The balance sheet at 31st December 2006 indicated shareholders funds of £2.77m, net current assets of £2.38m (including cash of £1.78m) and Long Term Liabilities of £580,000-well we aren’t investing for balance sheet strength but it could be worse.
Net cash generated from operations in 2006 was £1.59m (vs Operating profit of c£0.8m) which appears a little too good to be true.
The peer group comparison for this £21m company (at least it was back then) was made against (amongst others) Abbot Group (Mkt cap c£670m), Expro International (Mkt cap c£1bn), Petrofac £1.6bn), John Wood Group (£1.6bn) and arrives at an average 2008 PER of 15.8x.
A more appropriate comparison would surely have been with AIM quoted (and UK based) Sovereign Oilfield Group (AIM:SOGP) Mkt cap c£25m and trading c13x 2008 estimates and UK based Chieftain Group (AIM:CFT) Mkt cap c£17m c13x 2008 estimates.
It’s an exciting opportunity to get in at the start in a business that would appear to have a potentially thrilling future across 2 booming sectors. It has proved that it can deliver on minor projects and has successfully won big contracts on foreign soil in Quatar and Indonesia which is good going.
BUT
It’s a Malaysian business that’s a total unknown in the UK-RISK = Discount
Management are not known in the UK – RISK = Discount
There is a projected huge uplift in turnover in 2007-RISK = Discount
The major contract for 2007 is the largest of its kind for the group-RISK = Discount.
One major contract and one client dominates in 2007-RISK = Discount.
There is foreign exchange risk for the UK investor-RISK = Discount.
Peer group valuation comparison isn’t comparable-RISK = Discount
Illiquid-RISK = Discount
Taking a prudent view on 2007 estimates one can cut back the profit c£1m. Given the huge step change I think one also has to look at what they have achieved to date.
Conjecture
So I was wrong-BIG time.
Good luck to Plant Offshore!
The group floated at 12p at the beginning the week and at the close today they were trading at c19p-quite a return! Volumes weren’t great but it’s the perception.
POGL originally wanted to raise £2.6m at a prospective Price Earnings ratio of approximately 12 times (2007 estimates), giving them an initial post-IPO market capitalisation of about £21.5m. It now stands at £32m so assuming the estimates remain as they were it stands on nearly 18x 2007 estimates and c15x 2008 estimates.
Perhaps I am missing something and further contracts have been nailed in the interim, however, they still have to deliver on these. The contract award is surely only a small part of the jigsaw, just ask Global Marine!
Despite this (and my sour grapes!) I’m still not sure why a Malaysian company, with Malay clients needs to come to AIM to raise a paltry £2.6m. But we do seem to see this time and time again.
The numbers look compelling but the suggested valuation just doesn’t stack up for me as it is based on a huge step change in the business from 2005 to 2006. There are obviously some massive operational risks with regard to this and one should allow for the potential of a hiccup or two, especially with a small group who has never undertaken work of this magnitude.
The balance sheet at 31st December 2006 indicated shareholders funds of £2.77m, net current assets of £2.38m (including cash of £1.78m) and Long Term Liabilities of £580,000-well we aren’t investing for balance sheet strength but it could be worse.
Net cash generated from operations in 2006 was £1.59m (vs Operating profit of c£0.8m) which appears a little too good to be true.
The peer group comparison for this £21m company (at least it was back then) was made against (amongst others) Abbot Group (Mkt cap c£670m), Expro International (Mkt cap c£1bn), Petrofac £1.6bn), John Wood Group (£1.6bn) and arrives at an average 2008 PER of 15.8x.
A more appropriate comparison would surely have been with AIM quoted (and UK based) Sovereign Oilfield Group (AIM:SOGP) Mkt cap c£25m and trading c13x 2008 estimates and UK based Chieftain Group (AIM:CFT) Mkt cap c£17m c13x 2008 estimates.
It’s an exciting opportunity to get in at the start in a business that would appear to have a potentially thrilling future across 2 booming sectors. It has proved that it can deliver on minor projects and has successfully won big contracts on foreign soil in Quatar and Indonesia which is good going.
BUT
It’s a Malaysian business that’s a total unknown in the UK-RISK = Discount
Management are not known in the UK – RISK = Discount
There is a projected huge uplift in turnover in 2007-RISK = Discount
The major contract for 2007 is the largest of its kind for the group-RISK = Discount.
One major contract and one client dominates in 2007-RISK = Discount.
There is foreign exchange risk for the UK investor-RISK = Discount.
Peer group valuation comparison isn’t comparable-RISK = Discount
Illiquid-RISK = Discount
Taking a prudent view on 2007 estimates one can cut back the profit c£1m. Given the huge step change I think one also has to look at what they have achieved to date.
Conjecture
So I was wrong-BIG time.
Good luck to Plant Offshore!
Great company with good prospects for growth IMHO