EZRA HOLDINGS LIMITED
5DN.SI
Ezra Holdings - Targeting Return To Dividends
- At its results briefing, Ezra’s management surprised us by highlighting its target to return to paying dividends.
- Maintain TRADING BUY, with a SOP-based SGD0.33 TP (from SGD0.36, 154% upside).
- After selling half the subsea business, its balance sheet is indeed looking healthier and the company should return to positive FCF this year.
- The USD67m tranche of debt to be refinanced by Mar 2016 is not large enough to warrant solvency concerns.
Return to positive free cash flow (FCF).
- Through a combination of lower capex (now that the Lewek Constellation has been delivered), better working capital controls, and targeting 10% lower cash overheads, we believe Ezra can return to a positive FCF position this year. We also estimate its net gearing to drop to its target 0.5-0.6x by FY16F/FY17F from 0.77x today (this figure includes the USD106m of perpetuals being redeemed as debt).
May be dividend-paying as soon as Aug 2016.
- In management’s words, Ezra is “going to return steady dividends going forward”. As the company’s cash flow stabilises and gearing falls, we believe this willingness will be combined with the ability to pay – prompting us to pencil in c.20% payout ratios for FY16F-18F.
Only a USD67m debt tranche to refinance by Mar 2016.
- Ezra’s debt maturity profile is healthy – of the USD479m coming due within a year, USD412m are revolving cash facilities related to vessel, project and working capital purposes which we expect the banks to refinance. There is only one USD67m of non-bank debt to either refinance or retire, which poses little solvency risk to the group. The next USD106m tranche of non-bank non-revolving debt will be due only three years later.
- Market concerns about Ezra’s balance sheet appear overdone with the stock trading at 0.24x P/BV yet recording gains on vessel sales.
New industry records, company remains on track.
- We highlight that Ezra’s flagship Lewek Constellation has set new industry records with a 632-tonne pipelay tension at sea trials, holding on to the pipe in c.2,200m of water.
- To reflect the still-challenging operating environment, we take the conservative option of discounting the subsea sale value at 40% (from 20%) in our SOP, resulting in a lower SGD0.33 TP.
- Maintain TRADING BUY.
- Key risks are its execution and order win momentum
Lee Yue Jer CFA
RHB Research
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http://www.rhbinvest.com.sg/
2015-10-27
RHB Research
SGX Stock
Analyst Report
0.33
Down
0.36
