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Intersuisse update just out:

Mermaid Marine Australia Limited MRM Friday 12 September 2008

In pole position to supply strong North West Shelf growth over the next four years

Recommendation: Buy

Investment Rationale
MRM offers an excellent opportunity to participate in the development of oil
and gas activities on the North West Shelf. Its Dampier Supply Base near
Karratha is the closest point to the North West Shelf. A slipway there provides
a significant competitive advantage in servicing and maintaining MRM’s fleet.
The Gorgon field and Jansz field will be tied back to Barrow Island, where
three LNG trains will support LNG exports and a domestic gas connection to
the mainland, meeting an existing pipeline around midway between Dampier
and Onslow. Singapore, Egypt and Angola activities augment WA upside.
Event
 NPAT for FY08 was $17.9m, above the $17.5m estimate in our 11 August
“Buy” report at $1.62 and a 43% rise on FY07. Revenues rose 45% to
$149.4m and EBITDA 43% to $39.4m. EPS increased 32% to 11.8¢.
 ROE on a weighted average basis rose from 17.1% to 18.5%. The final
(and full year) dividend was doubled to 2¢, ex-date 18 September.
Dividend policy will be to pay interim and final dividends reflecting a
payout ratio of between 40% and 50%.
 Cash flow is strong, assisting growth. Net debt to equity was 24% in FY08
before rising close to 50% in FY09. Interest cover was five times.
 MRM experienced rapid growth in employee numbers during the year with
total hours worked increasing about 40% in FY08 compared to FY07.
 Vessel revenue grew by 50% due to investment in new vessels, strong
utilisation levels and a number of chartered vessels brought in over the
year. The Mermaid Discovery, Sentinel and Spirit were purchased and
MRM entered a charter/purchase agreement on the Crest Diamond which
brings that vessel into the fleet in FY09. As some older, smaller, vessels
were sold in the fleet renewal programme, average age is now 13 years.
 MMA was the lead marine provider for the Woodside Angel Project, with
up to five owned and chartered vessels in use in the construction period.
 Geokinetics' contract work saw three chartered vessels working in
Australia and the new Mermaid Discovery in Egypt.
 The Dampier Supply Base performed strongly with EBITDA up 53% to
$8.4m, primarily from increased demand for wharf services. MRM built a
2,250 m2 new warehouse, committed $22m to expanding the Dampier
wharf facility, upgraded the slipway to take larger vessels and signed an
agreement with Chevron to support its Gorgon project.
 At Broome a new casing yard was added and construction begun on a
new adjacent supply base area to support the drilling by customers Shell,
Woodside and Inpex in the prospective Browse Basin.
Impact
 Further funding for new vessels will be sourced from new debt facilities
and operating cash flow. The infrastructure upgrades and wharf extension
will drive returns on the supply base asset and be EPS accretive in FY10
with significant long term benefits: -
 We see FY09’s growth largely from vessels and the Geokinetics contract,
with an acceleration over the next few years. In FY10 the completed
Dampier expansions will increase throughput; in FY11 the Gorgon field
development should ramp-up, creating higher utilization at the Dampier
base; while by FY12 we can expect a ramp-up of work at the Browse
Basin to increase activity at Broome.
Recommendation Impact - Market outlook is buoyant. MRM is in pole
position on the NWS to see strong growth through each of the next four years.