Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

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.


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.

So I was wrong-BIG time.

Good luck to Plant Offshore!

Author: Blogger flyingswan | Posted: 10:26 am  
Plant Offshore Group POGL.L has great End of year final reults and is now showing a steady reovery on its chart.

Great company with good prospects for growth IMHO
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