LAST week, local brokerage Westcomb issued a brief research report on offshore oil and gas industry service provider Swiber Holdings.
Citing the fact that Swiber had just landed a US$146.6 million project from Brunei Shell Petroleum Company, Westcomb put a target price of $2.08 on the recently listed mainboard company.
The Shell project is Swiber's single-largest engineering, procurement, construction, installation and commission (EPCIC) contract, and its maiden in oil-rich Brunei.
Starting in the second quarter of this year, the company expects to realise about US$70.5 million in 2007 and a further US$76.1 million in 2008.
Not surprisingly, the Feb 14 report sent Swiber's stock price surging - about 15 per cent over three days. It closed at $1.19 last Friday.
But what many in the market have yet to realise is that Sesdaq-listed marine services and supplies business Swissco may offer a leveraged play on Swiber.
Here's why.
Swiber was a 20 per cent associate of Swissco before the former's October 2006 listing. Now Swissco owns less than 15 per cent of Swiber, thereby removing the possibility of equity-accounting for the associate.
And here's the interesting part - Swissco still owns 55 million Swiber shares.
At Friday's market price, this is worth $66 million - a remarkable gain from the $2 million price the shares were carried at in Swissco's books before the October 2006 listing.
Breaking this down, this asset is now worth 37 cents per Swissco share.
Swissco is now trading around 62 cents per share, which implies a perceived value of 25 cents per share for the rest of its assets.
This is a rather conservative assumption for a successful company sitting smack in the centre of its market sweet spot, with offshore vessels worth about $45 million and earnings this year expected to be about $12 million.
All of this also raises another interesting question: Does it make sense for a $108 million market-cap company to carry a $66 million investment in its books which it cannot equity-account?
In all likelihood, Swissco could decide to sell - or at least reduce - its Swiber shareholding when its moratorium ends on May 8.
And it could do so for two reasons.
First, it needs funding to build more offshore support vessels. Just last week it announced plans to add two vessels to its fleet worth some $6.4 million. It now has 15 offshore vessels, which it intends to expand to 35 in two years. It is taking delivery of eight vessels this year and three more next year.
This is a company that is enjoying a boom as demand for vessels continues to outstrip supply amid frenetic offshore energy exploration and marine activity around the region.
But cash-rich and debt-free Swissco could also decide to reward loyal shareholders with a handsome one-off payout using the proceeds of a Swiber sale. Even if it distributes a conservative 30 cents a share, such a payout would still translate to a potential windfall for shareholders.
Indeed, going by the numbers, Swissco looks like a promising leveraged play for those who missed the boat on fast-moving Swiber.
