West, your last paragraph sums it up exactly. This a cyclical stock. Oil exploration and production will move into next expansion cycle soon enough. I haven't read a single analyst who believes the world will not need more oil in the years ahead. This is where money is made in the market, buying before the cycle shows signs of upwards.
Could MMA fall into insolvency. Of course it could, any company could. Will the situation get worse before better? Quite possibly, the company have foreshadowed that. Nevertheless, even with a fall in revenues to 2013 levels we would generate EBIT of approx. $90m, that covers debt x7. Well within normal covenants, gearing is a little high at 36% and if there was to be a large writedown (don't think there will) it could exceed 40% which is likley to break a covenant on gearing.
I take more notice of Morningstar analysts than any other. I feel they are less conflicted with trading accounts. Their FY16 EPS is 10.8c and a dividend of 3c. A conservative view, more likley revised upwards than down. So at today's prices a forward grossed up dividend in excess of 7% and a forward PE of 6. The SP is understandable based on what we know today, there is no growth for a couple of years at least.
Like others I wouldn't mind foregoing the dividend to reduce gearing. We will benefit in the long run and may avoid a need for additional equity. There is the issue of funding committed projects into next year that needs to be watched closely.
Competition is an interesting one. When this is mentioned it seems to be on the basis that all competitors are more efficient and therefore can undercut our prices without stress. Is that true? Sometimes it is better to under utilise and watch competitors struggle to make a dollar on slim margins, eventually leading to their demise. I'm not saying that is the case but there are plenty of case studies that illustrate taking on work at any cost is not a good strategy.
I can't imagine setting up an offshore supply and service business is easy. Therefore, when the industry turns they will be looking for proven players who do the job. MMA surely fit that criteria, just need to ride out the storm. I'm sure they will based on balance sheet, analysts and commentary from the company.
MRM Price at posting:
59.0¢ Sentiment: Buy Disclosure: Held
