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Not So POSH-itive
Tradeable, Tradeable Ideas | 25 April 2014
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By: Lim Si Jie
Articles (169) Profile
  1. The cost of exploration and production is rising coupled with the offshore oil and gas industry’s decreasing pool of skilled professionals.
  2. Risks associated with investment in POSH does not instill confidence
  3. Valuations point to an expensive price to pay for POSH

Company Profile & Business Model

PACC Offshore Services Holdings (POSH) is made up of several merger and acquisitions of various companies in the offshore and marine industry. POSH has years of operating experience and specialised expertise in offshore and marine oil field services. POSH group is divided into four main divisions.

Source: POSH IPO Prospectus

Sector Profile

The future of the industry remains bright, driven by a global increase in energy demand. In particular, emerging markets such as China and India as key energy drivers are estimated to account for more than half of the global incremental energy demand from 2010 to 2040.

POSH is also preparing to expand into new geographic markets with significant growth potential. POSH is currently working towards expanding their presence in Mexico which will serve as springboard for strategic expansion into other regions of Latin America.

POSH is expected to fund any such expansion from cash flows from operations and bank borrowings.

Amid a positive outlook for the offshore oil and gas industry in 2014, senior oil and gas professionals are forecasting tighter monitoring of capital expenditures (CAPEX) this year, according to new research published by DNV GL.

Industry insiders expect the industry to keep a closer watch on costs: 62 percent intend to pressure suppliers to curb cost increases next year, especially across Asia, according to a recent report, “Challenging Climates: The outlook for the oil and gas industry in 2014”.

The cost of exploration and production is rising, at the same time, the industry’s pool of skilled professionals is decreasing. Companies will thus be feeling greater pressure on their cost overheads. This certainly does not paint a very rosy picture for POSH’s path ahead.

Previous Records of Dividends

For the year ended December 31, 2011, POSH paid dividends of $0.044 per share to its shareholders. For the year ended December 31, 2012, dividends were distributed to its shareholders and holders of its redeemable convertible preference shares (“RCPS”) of $0.044 per share for each Share/RCPS.

Dividend Yield at IPO price: 3.04 percent

Use of Proceeds from Offering

POSH intends to use all of the net proceeds received from the offering to repay part of the outstanding amounts under its revolving facilities. These facilities have been used for its working capital and capital expenditures.

POSH also plans to expand its fleet to include deep water accommodation vessels so as to aid them in breaking into new markets such as Latin America. Although breaking into new markets could mean a generation of more revenues, investors buying into the IPO need to note that there are a number of risks associated with such a venture.

Risks Relating to Investment in POSH Shares

Fundamental Analysis

At the IPO price of $1.15, the initial public offering price is substantially higher than book value per Share. Investors looking to buy into POSH’s IPO will be paying a premium of $0.41 above its NAV per share.

A Huge Price to Pay

An IPO of an offshore services provider owned by Malaysian billionaire Robert Kuok is definitely creating a lot of investor hype. The IPO was five times oversubscribed. That hype may push the opening price to an artificial highs of December 31, 2013, Net Asset Value (NAV) per Share is $0.74.

However, those who manage to successfully ballot for the IPO may want to offload it while they are still making a profit. The “Greater Fool Theory” doesn’t always work.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

PACC Offshore Services Hldgs  -- -- --   
Business: Operator of offshore support vessels (OSV), with a diversified fleet servicing offshore O&G activities. [FY17 Turnover] OSV (39%), offshore accommodation (42.5%), harbour svcs & emergency response(11.1%), tptn & installation (7.4%).

Insight: Aug-18, 1H18 revenue doubled to US$153.7m due to h... Read More

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