Making headway in a challenging environment

Ocean Wilsons Holdings Limited 11 October 2017 Update
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Ocean Wilsons Holdings

Making headway in a challenging environment

H117 and trading update

Investment companies

 

11 October 2017

Price

1130p

Market cap

£400m

US$1.32/£

Net debt (US$m) at 30 June 2017 including finance leases & excluding JV

303.3

Shares in issue

35.4m

Free float

36%

Code

OCN

Primary exchange

LSE

Secondary exchange

Bermuda

Share price performance

%

1m

3m

12m

Abs

3.2

5.7

20.1

Rel (local)

1.0

2.9

11.7

52-week high/low

1125.0p

932.5p

Business description

Ocean Wilsons Holdings is an investment company based in Bermuda. It has a controlling shareholding in Wilson Sons, a quoted maritime services company in Brazil, and holds a portfolio of international investments.

Next events

OCN quarterly update and WSON Q3 results

November 2017

Analyst

Andrew Mitchell

+44 (0)20 3681 2500

Ocean Wilsons Holdings is a research client of Edison Investment Research Limited

Ocean Wilsons’ (OCN) first-half figures reported in August showed that its quoted Brazilian operating subsidiary, Wilson Sons (WSON), made progress despite a still difficult trading background, particularly for its offshore JV. The main container terminal and towage businesses are well invested and positioned to exploit a longer-term revival in the local economy. Confidence in this appears to be growing if strength in the currency and Bovespa equity index are taken as indicators.

Year end

Revenue ($m)

PBT* ($m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/15

508.9

69.0

43.7

63

34.1

4.2

12/16

457.2

117.5

127.4

63

11.7

4.2

12/17e

489.1

117.7

135.4

64

11.0

4.3

12/18e

507.8

115.9

125.5

67

11.9

4.5

Note: *PBT and EPS (fully diluted) exclude exceptional items.

H117 results and offshore JV update

First-half revenues increased by 14.5% compared with the prior year period, largely reflecting strength in the Brazilian real (BRL). Within this, container terminals showed stronger growth while a sharp reduction in special operations income muted towage growth. Operating profit increased by 10% and a strong performance from the investment portfolio (+10% in the six months) helped boost the pre-tax profit increase to 31%. Reflecting the tough oil sector background Wilson Sons recently announced that its offshore joint venture (WSUT) is in negotiations with Petrobras that may lead to a temporary suspension of up to eight platform support vessel contracts and a reduction in average daily rates.

Outlook: Cloudy with brighter intervals

The background in Brazil remains difficult as the economic recovery is still tentative and subject to setbacks if political developments upset the process of reform that President Michel Temer is trying to pursue. However, global GDP growth estimates, such as those prepared by the IMF, have been increased in recent months. The Ocean Wilsons investment portfolio (32% of our look-through valuation; see page 8) saw a revival in performance in the first half which could be sustained if the global economy and hence emerging markets remain resilient. The main operating businesses at Wilson Sons are exercising continuing cost discipline and have strong market positions so are well positioned to benefit if the background in Brazil becomes more favourable. Our estimates make allowance for tough near-term prospects for WSUT.

Valuation: Wide discount belies business qualities

A look-through valuation that includes the current market value of Ocean Wilsons’ stake in Wilson Sons (1,154p) and the value of the investment portfolio (555p) at the end of June shows that OCN shares trade at a 34% discount. This appears conservative given that Wilson Sons is not expensively rated relative to peers or in the light of a recently agreed purchase of a container terminal asset (Paranaguá) by China Merchants.

H117 results

Ocean Wilsons released its H1 interim management statement in August coinciding with the announcement of Q2 figures from Wilson Sons. Exhibit 1 gives a summary of the main P&L items and the main points were as follows (all comparisons with H116 unless stated):

Net revenue at Wilson Sons (which accounts for all of Ocean Wilsons’ revenue) increased by 14.5% mainly reflecting a strengthening in the Brazilian real versus the US dollar.

The Brazilian real’s average exchange rate versus the US dollar appreciated by 17% and in BRL terms revenue was marginally down: still a resilient performance against a difficult macroeconomic backdrop.

The currency move also pushed up costs in US dollar terms but growth here was contained at 14.5%, partly due to lower tugboat rental costs (following the purchase of six boats last year) and a one-off provision write-back of $3.9m.

Operating profit was up 10%. The reported operating profit margin edged modestly lower but was maintained at 21% before the $2.0m loss on sale of plant, property and equipment.

The investment revenues (mainly dividend income) and investment gains (realised and fair value movements) taken together saw a big swing (+$31m) into positive territory, reflecting increased dividend income and a strong positive return of over 10% in the first half from the OWIL investment portfolio.

The net contribution from joint ventures (Wilson Sons’ 50% share in the offshore support vessels business – WSUT) was only lower because the prior year period benefited from a positive foreign exchange item relating to monetary items of $5.1m versus a negative $0.5m in H117. Operating profit in this business was up 35%. We discuss the Wilson Sons Q217 results in more detail below.

Exhibit 1: First half results summary

US$m except where stated

H116

H216

H117

Change y-o-y

Sequential change

Revenue

214.7

242.5

245.8

14%

1%

Raw materials and consumables

(16.3)

(21.4)

(18.8)

15%

-12%

Employee benefits

(68.3)

(76.0)

(83.8)

23%

10%

Depreciation and amortisation

(24.4)

(28.2)

(28.9)

19%

3%

Other operating expenses

(61.2)

(65.3)

(63.4)

4%

-3%

Profit on disposals of PPE

0.1

0.7

(2.0)

Positive to negative

Positive to negative

Operating profit

44.6

52.3

48.9

10%

-6%

Share of results of joint ventures

2.9

5.2

1.8

-37%

-65%

Investment revenue

6.0

9.1

9.8

64%

7%

Investment movements/disposal gains

(7.3)

3.2

20.3

Negative to positive

535%

Finance costs incl. FX movements on borrowings

7.9

(8.5)

(8.1)

Positive to negative

-4%

FX gains/(losses) on monetary items

3.1

(0.9)

2.2

-30%

-357%

Profit before tax

57.1

60.4

74.9

31%

24%

Income tax

(17.2)

(19.6)

(19.4)

13%

-1%

Non-controlling interests

(20.1)

(15.6)

(14.1)

-30%

-9%

Earned

19.8

25.3

41.3

109%

64%

EPS (cents)

56.0

71.4

116.9

109%

64%

Operating profit margin (%)

20.8

21.6

19.9

Source: Ocean Wilsons Holdings, Edison Investment Research

Where there have been significant changes in the BRL/US$ rate there can be marked foreign exchange related items that affect the reported P&L at the pre-tax profit and net earnings level. We have collated these items for the latest three half-year periods in Exhibit 2. As a reminder, the gains/losses on monetary items include foreign exchange-related movements in the value of working capital items and cash and cash equivalents; gains/losses on foreign currency borrowings relate to US dollar-denominated debt in subsidiaries reporting in BRL; and changes in deferred tax arise from foreign exchange-related changes in the value of debt and fixed assets, which in turn increases or reduces the value of future tax deductions.

Exhibit 2: Foreign exchange rate (FX) movements and related P&L items

US$m except where stated

H116

H216

H117

Change y-o-y

Sequential change

BRL appreciation/-depreciation versus US$

Average US$/BRL rate

3.71

3.27

3.18

17%

3%

US$/BRL end period rate

3.21

3.26

3.34

-4%

-3%

Items relating to FX movement

FX gain/(loss) on monetary items

3.1

(0.8)

2.2

-29%

Negative to positive

FX gain/(loss) on foreign currency borrowings

13.9

(1.1)

(1.1)

Positive to negative

0%

Deferred tax on retranslation of fixed assets

22.2

0.2

0.2

-99%

0%

Deferred tax on exchange variance on loans

(14.4)

0.1

(0.2)

Positive to negative

Total

24.8

(1.6)

1.1

-96%

Negative to positive

Source: Ocean Wilsons Holdings, Bank of England, Edison Investment Research

As noted earlier, first half revenues and costs were enlarged by the strengthening of the average rate of the BRL versus the US$ (+17%) while the change in exchange rate since H216 was only +3%. The movement in end-period exchange rates was muted and negative at -4% y-o-y and -3% sequentially; it is these movements that drive the FX items listed in Exhibit 2. These were marginal for H117 compared with a substantial net positive item within the H116 P&L figures.

Wilson Sons’ Q217 results

Here we focus on the Q217 results for Wilson Sons, making comparisons with Q216 and Q117 (see Exhibit 3). Within the overall revenue gain of 14.2% y-o-y in US$ terms (+4.2% in BRL) there were considerable variations (total revenue here includes the Offshore Support Vessels JV on a pro forma basis).

Container Terminals and Towage together account for 74% of total revenue and the terminals operation showed particular strength (+28% y-o-y). The revenue performance in Container Terminals did benefit from a 6.5 percentage point (or $2.4m) one-off boost from a provision write-back while overall container volumes were modestly down year on year. However, full container volume was nearly level with the prior year period and the revenue mix was richer, reflecting increases in import volumes. This and BRL strength explain the c 21% growth reported excluding the one-off write-back. For Towage, revenue grew by 7.3% y-o-y and was down marginally in BRL terms. Within the total, harbour manoeuvre revenues were up 15.5% but special operations were down 55% reflecting the more volatile nature of this activity, which includes salvage, fire-fighting and oil and gas operations.

Otherwise the Offshore Support Vessels JV reported revenues up 20% y-o-y, reflecting increased days in operation together with an increased daily rate; both measures benefited from the start of operation of two large new vessels (Larus and Pinguim). Since the half-year announcement Wilson Sons has announced it is negotiating changes in certain contracts with Petrobras (see below). A sharp revenue decline compared with the prior year period was seen in the Oil and Gas Support Base (Brasco) reflecting the absence of one client contract in October last year and the subdued oil industry background.

Turning to profitability, overall EBITDA was up 22% y-o-y (again including the JV). The strongest improvement was seen in Container Terminals (+42%), which benefited from the write-back of a provision (larger at the profit level, at $4m) and excluding this there was a still healthy 15% increase. Both Rio Grande and Salvador terminals are benefiting from delivery of new handling equipment earlier in the year that has helped them achieve higher productivity levels. Towage achieved a slightly higher EBITDA margin at just over 50%, with year-on-year growth of nearly 13%. Offshore Support Vessels reported a 23% EBITDA increase helped by the two new vessels starting operation. EBITDA for other areas saw substantial percentage reductions, reflecting difficult trading conditions, notably in the oil industry. However, these areas only account for a small percentage of the total, while corporate expenses have been contained at the same level as the prior year period despite BRL strength, as a result of the group’s continuing cost discipline.

Exhibit 3: Wilson Sons Q217 results comparison

US$m unless stated

Q116

Q216

Q117

Q217

Change y-o-y (%)

Sequential change (%)

Net revenues

Container Terminals ("TECONs")

29.3

36.9

43.8

47.2

27.8

7.8

O&G Terminal ("Brasco")

5.1

5.9

3.7

4.1

-30.5

10.8

Towage

48.6

50.8

48.4

54.5

7.3

12.8

Shipyards

4.9

6.1

6.2

6.2

0.7

0.0

Shipping Agency

3.3

3.4

2.7

2.9

-14.6

7.4

Logistics

10.6

9.9

12.9

13.2

33.7

2.3

Offshore*

14.7

16.9

17.3

20.3

20.0

17.3

Total

116.5

129.8

135.0

148.3

14.2

9.9

EBITDA

Container Terminals ("TECONs")

11.6

15.1

19.4

21.4

42.1

10.3

O&G Terminal ("Brasco")

1.3

1.2

-0.1

0.2

-80.8

N/A

Towage

24.0

24.4

22.6

27.5

12.8

21.7

Shipyards

-0.2

1.8

0.6

0.4

-80.3

-33.3

Shipping Agency

1.0

0.5

0.3

0.2

-60.0

-33.3

Logistics

1.0

-1.6

-0.2

-0.4

N/A

N/A

Corporate

-4.3

-4.6

-7.1

-4.6

0.0

N/A

Offshore *

6.6

8.9

8.3

10.9

22.9

31.3

Total

41.0

45.7

43.8

55.6

21.7

26.9

EBITDA margins (%)

Container Terminals ("TECONs")

39.6

40.9

44.3

45.3

O&G Terminal ("Brasco")

25.5

20.3

-2.7

4.9

Towage

49.4

48.0

46.7

50.5

Shipyards

-4.1

29.5

9.7

6.5

Shipping Agency

30.3

14.7

11.1

6.9

Logistics

9.4

-16.2

-1.6

-3.0

Offshore*

44.9

52.7

48.0

53.7

Total

35.2

35.2

32.4

37.5

Source: Wilson Sons, Edison Investment Research. Note: *WSUT 50% JV included on a pro forma basis. Totals may not sum due to rounding differences.

Exhibit 4 gives a summary of Wilson Sons’ operating metrics for the nine months to the end of September. Points to note here include the fact that overall terminal volume was up 2.6% compared with the same period last year. Rio Grande (southern Brazil) was 5.1% ahead helped by strong imports, including spare parts and steel products, while growth at Salvador was 2.6%, held back by weaker exports influenced by the strength of the BRL. Positively the mix between full and empty containers has been favourable for revenues with full increasing by 5.2% and empty down by 2.2%.

Exhibit 4: Operational metrics (to end September)

9M16

9M17

Change (%)

Container Terminals (TEU000s)

 

 

 

Tecon Rio Grande

 

 

 

Full

337.1

362.8

7.6

Empty

209.0

211.0

1.0

Total

546.1

573.7

5.1

Tecon Salvador

Full

171.9

172.5

0.3

Empty

60.7

52.6

-13.3

Total

232.6

225.1

-3.2

Grand total (full)

509.0

535.3

5.2

Grand total (empty)

269.6

263.6

-2.2

Grand total

778.6

798.9

2.6

Towage

 

Number of harbour manoeuvres

43,254

44,969

4.0

Avg. Deadweights ('000 tons)

64.0

70.9

10.8

Offshore service vessels (JV)

 

Number of own OSVs – end of period

21

23

9.5

Number of own OSV days in operation/contract days

4,664

4,797

2.8

Source: Wilson Sons

For Towage the 4% increase in manoeuvres has been augmented by a near 11% increase in average deadweights, which is positive for revenues. As noted earlier, the Offshore Service Vessels activity benefited from the addition of two new large vessels with six-year contracts, although four vessels remain off hire, with a further nine having contracts expiring between now and the end of 2018. As detailed below contracts on up to eight vessels may be temporarily suspended.

WSUT negotiation of contracts with Petrobras

Wilson Sons announced (26 September) that its 50%-owned offshore joint venture, Wilson Sons Ultratug Offshore (WSUT) is in negotiation with Petrobras that may lead to a temporary suspension of up to eight platform supply vessel (PSV) contracts and a reduction in average daily rates. Two of the contracts have already been suspended. This reflects the depressed current environment in the oil sector. The adjustments may include up to 858 days of suspension for all the vessels combined and an estimated reduction of approximately 6% in the fleet average gross daily rate. Although a negative in the near term, the bad news is softened by the fact that the contracts are set to be adjusted rather than cancelled.

OWIL investment portfolio

In the first half, the portfolio and cash under management within Ocean Wilsons (Investments) Ltd (OWIL) increased by $20.1m or 8.4% to $259.0m and the portfolio generated a positive performance of 10.3%, compared with its benchmark1 +2.9% and the MSCI World All Countries (including Frontier Markets) Index +11.5%. The portfolio performance represented a noticeable acceleration from the return of +0.3% for 2016 and benefited from strong performances attributed to its European and emerging market exposures and a bounce back in some of the funds that had experienced a weak period last year. Further details of performance are shown in Exhibit 5.

  The portfolio’s absolute benchmark is the US CPI Urban Consumers NSA plus 3% from 1 January 2015 and previously US$ 12-month Libor plus 2%.

Exhibit 5: OWIL portfolio performance to end June 2017 (%)

H117

Three years

Five years

10 years

OWIL portfolio

10.3

4.1

6.3

2.8

Benchmark (composite – see footnote1)

2.9

4.3

3.8

4.0

MSCI All Country World + FM

11.5

4.8

10.5

3.7

MSCI Emerging Markets

18.4

1.1

4.0

1.9

Source: Ocean Wilsons Holdings. Note: Three, five and 10 years on a per annum basis.

Current trading environment and outlook

The Brazilian political and economic background remains uncertain. First quarter GDP was ahead of expectations, but domestic demand remains weak and the expected gradual economic recovery could be compromised if consumer and business confidence is impacted adversely by political developments. However, President Temer avoided the referral of a corruption case to the Supreme Court during August and may be able to pursue his reform agenda, notably pension legislation designed to contain future budget deficits.

Exhibit 6: Brazilian real/US dollar exchange rate

Exhibit 7: Bovespa index (1 January 2014 = 1)

Source: Bank of England

Source: Bloomberg

Exhibit 6: Brazilian real/US dollar exchange rate

Source: Bank of England

Exhibit 7: Bovespa index (1 January 2014 = 1)

Source: Bloomberg

In its October World Economic Outlook the IMF increased its 2017 and 2018 Brazilian GDP forecasts to 0.7% and 1.5% respectively (from 0.3% and 1.3% in July). Assuming political and policy uncertainties are gradually resolved the IMF looks for medium-term growth of 2%. After GDP contraction of 3.8% and 3.6% for 2015 and 2016, respectively, such a recovery would be encouraging. As shown in Exhibits 6 and 7, both the currency and the Brazilian stock market (as represented by the Bovespa Index in both BRL and US$ terms) have shown significant strength despite fluctuating political developments, suggesting markets are taking a relatively positive view of the outlook for recovery.

From Wilson Sons’ perspective, a return to GDP growth and the longer-term expectation of stronger trade volumes and a secular trend to containerisation are encouraging features that help support its decision to invest in new crane equipment for its container terminals and should mean that the planned expansion that formed part of its agreement to renew the Salvador concession (by 25 years to March 2050) will be gainfully employed. Construction of the first phase of the expansion is expected to start towards the end of the current year or the beginning of 2018 and to be completed in the second half of 2019 at a cost of c US$100m. The quay extension will allow the docking of larger vessels and reduce vessel waiting times. Subsequent phases do not need to be completed until 2030 and 2034, providing good scope to time expansion to meet demand.

The towage business also stands to benefit from a return to stronger growth in Brazilian trade volumes. As noted in our Q1 update report there are competitive pressures to monitor, but Wilson Sons indicates that it is market leader with a share of 49% and operates a fleet of 75 vessels. This covers 30 ports, compared with 13 for the next largest competitor (Saam Smit). This, together with the central monitoring facility in Sao Paolo, allows the company to offer a high level of service that helps maintain its market position.

As noted above the background for the oil-related activities at Wilson Sons remains challenging, although for most of the last 12 months Brent crude has maintained a price level of around $50 (currently c $55). Petrobras in Brazil is likely to remain focused on production rather than exploration for a while, but its programme of debt-reducing asset disposals, moves to allow non-domestic companies to operate with lower levels of local content, and competitive break-even levels for Brazilian pre-salt reserves should be favourable for activity levels in the oil sector in due course. WSUT is currently negotiating the adjustment of contracts relating to eight PSVs with Petrobras which will reduce days in operation and rates. Utilisation of the fleet of 23 PSVs is also reduced by the four vessels currently off hire and by end June 2018 a further nine vessels contracts come to an end leaving 10 vessels on contract. WSUT is therefore concentrating on cost containment and winning new contracts for the platform support vessels currently off-hire or set to complete contracts by the end of 2018.

The shipyard has an order book including five vessels and seven dry-docking operations, but Wilson Sons does not expect a return to the activity levels of earlier years in the near term.

The nearer-term market background for the OWIL portfolio remains uncertain, although global markets have continued to navigate a fluctuating macroeconomic and geopolitical background with a display of considerable resilience. Equity market volatility has spiked for short periods but remains low on a historical comparison. While this raises concerns, it can be argued that market participants are looking through other worrying news and focusing on economic trends that remain broadly positive, with the IMF suggesting in its July update that global recovery is firming with estimated GDP growth of 3.5% for this year and 3.6% next. The investment manager of the OWIL portfolio, Hanseatic Asset Management, notes that it sees the stock market cycle as being “rather long in the tooth” although also still finding opportunities for attractive investment with a bias towards assets that may generate positive returns when equity and bond markets are declining.

Financials

We have adjusted our forecasts to reflect the H117 figures from Ocean Wilsons and Q217 figures from Wilson Sons; the changes in key figures are shown in Exhibit 8.

Exhibit 8: Changes to estimates

Revenue (US$m)

PBT (US$m)

EPS (c)

DPS (c)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

2017e

474.2

489.1

3.1%

107.9

117.7

9.1%

112.8

135.4

20.0%

64.0

64.0

0.0%

2018e

498.8

507.8

1.8%

114.5

115.9

1.2%

121.9

125.5

3.0%

67.0

67.0

0.0%

Source: Edison Investment Research

As can be seen, we have marginally increased our revenue estimates and our operating profit estimate for the current year is little changed, reflecting a corresponding increase in costs. At the pre-tax level there is a more marked increase in profits for 2017 because of the first half jump in investment revenues and investment gains described on page 2.

We continue to allow for the impact of the Brazilian federal government’s removal of a payroll tax from 2018. This is expected to cost about $12m in 2018 and there will also be a c $1.0m negative effect for the offshore JV. However, the company indicates that it is seeking to overturn the government decision so there is a chance that costs could be lower than estimated. We assume the contribution from WSUT drops sharply (from c $8m to c $2m) reflecting lower utilisation and daily rates as outlined above. Exhibit 9 sets out the recent annual revenue analysis for Wilson Sons together with our estimates for 2017 and 2018.

Exhibit 9: Wilson Sons segmental revenue pro forma analysis and estimates

US$m

2014

2015

2016

2017e

2018e

Container Terminals

189.6

152.5

148.4

171.2

179.9

Oil and Gas Terminal (“Brasco”)

39.0

23.5

19.4

15.9

15.9

Towage

211.0

213.7

205.8

214.1

222.7

Shipyards

103.4

53.9

26.4

24.8

24.8

Shipping Agency

17.1

15.4

13.9

11.1

11.5

Logistics

73.4

49.9

43.3

52.0

53.0

Offshore*

76.9

71.0

70.9

72.9

62.2

Total

710.4

579.9

528.1

562.0

569.9

Source: Wilson Sons, Edison Investment Research. Note: *Offshore is OCN’s pro forma 50% share of the JV.

At the end of June, Ocean Wilsons had net debt of $303.3m (compared with $300.5m at year-end). Including 50% of the debt at the Wilson Sons JV ($247.9m) and combining short-term investments at Wilsons Sons ($17.4m) with cash (shown in exhibit 15) would leave net debt still little changed from the year end at $533.8m versus $530.0m.

Exhibit 10: Capital expenditure history at Wilson Sons

Source: Wilson Sons

Exhibit 10 shows the history of Wilson Sons’ capital spending (including 50% of the offshore vessels JV on a pro forma basis), which peaked between 2010 and 2013 as the company invested in its port terminals, shipyards, towage fleet and offshore support vessels. Spending then averaged $123m between 2014 and 2016 following completion of the major expenditure programmes, although the 2016 spend of $125.2m was higher than 2015 ($117.6m), driven by tugboat acquisitions and purchase of port equipment. The company’s capital spending guidance for 2017 is $65-75m with limited spending on the Salvador expansion likely to be incurred this year. The FY18 and FY19 figures are likely to be higher as roughly $50m per annum is spent at the Salvador terminal; we assume an overall capital spending figure of approximately $100m in each year. Thereafter, we would expect spending to return to somewhat lower levels.

Further details of our forecasts for Ocean Wilsons are shown in Exhibit 15.

Valuation

We show an updated calculation of the look-through valuation for Ocean Wilsons in Exhibit 11; this includes the market value of the 58.25% stake in Wilson Sons together with the value of the OWIL portfolio as reported for the half year end. At the time of writing the market value remains very cautious with the share price standing at a discount of 34% to the look-through value. The share price is also modestly lower than the market value of the Wilson Sons shareholding alone. While it can be argued that the market will apply some discount in recognition of the limited liquidity in the shares and the Salomon family majority voting control through direct and Hansa Trust holdings, this level of discount seems wide in the context of peer valuations for Wilson Sons (see below).

Exhibit 11: Ocean Wilsons’ share price discount to look-through valuation

 

p

£m

Last OWIL value per Ocean Wilsons share (end June 2017)

554.9

196.2

Wilson Sons market value per Ocean Wilsons share

1,154.3

408.2

Ocean Wilsons look-through value

1,709.2

604.4

Ocean Wilsons share price/market cap

1,125.0

397.8

Discount

-34%

-34%

Source: Thomson Datastream, Ocean Wilsons, Edison Investment Research. Note: US$1.32/£, priced at 10 October 2017.

Exhibit 12 shows Wilson Sons consensus-based valuation multiples in comparison with a selection of Brazilian and international port and shipping companies. The range of earnings and EV/EBITDA multiples is wide and the businesses are differentiated in terms of activity and geographical exposure, but Wilson Sons trades at the lower end of the range and is broadly in line in terms of price to book value.

Exhibit 12: Wilson Sons’ selected comparators

Company

Market cap (US$m)

P/E FY1 (x)

P/E FY2 (x)

EV/EBITDA FY1 (x)

EV/EBITDA FY2 (x)

Price to book (x)

Wilson Sons

924

13.4

11.9

7.5

6.8

1.8

Santos Brasil

736

N/A

58.3

26.8

15.5

1.7

JSL (BRA)

603

38.0

14.4

5.7

4.9

2.8

China Merchants (HKG)

9,654

14.1

14.3

21.7

20.1

0.9

Dalian Port (HKG)

4,383

N/A

N/A

N/A

N/A

0.8

Hamburger Hafen (GER)

2,333

24.8

23.6

7.9

7.7

3.6

Port Of Tauranga (NZL)

2,120

35.2

32.6

22.3

21.0

3.2

Sinotrans (HKG)

2,332

9.1

8.4

7.6

7.1

0.9

Weighted average

13.9

14.7

13.8

12.5

1.5

Average

2,607

22.4

23.4

14.2

11.9

2.0

Source: Bloomberg. Note: Prices as at 10 October 2017.

We also note the recently announced purchase of 90% of Brazilian container terminal TCP by China Merchants Port Holdings for a consideration of c $925m. TCP manages the Paranaguá container terminal in Paraná state and has a logistics company. Paranaguá is one of the largest terminals in Brazil, with 2016 throughput of 741,000 TEU versus 720,000 and 310,000 for Wilson Sons’ Rio Grande and Salvador terminals, respectively (source: Wilson Sons presentation 5 September). Paranaguá handling capacity is put at 1.5m TEU and compares with a total of 2m for Rio Grande and Salvador combined (all prior to any expansion plans). Based on TCP’s trailing twelve months results to Q217 the transaction price indicates an EV/EBITDA of 13.6x and applying this to the Wilson Sons terminals’ FY16 EBITDA of $60.2m would give a value of $820m. If we allocate debt of c $80m to the activity this would leave an equity value of c $740m, equivalent to approaching 80% of the Wilson Sons market value. While subject to reservations this tends to support the argument that Wilson Sons is conservatively valued in the market as, potentially, a strategic buyer might accord a value that would leave the remainder of the group, including the substantial towage business, on a very low multiple.

Finally, for reference, we include two share price performance charts (both in sterling terms). The first shows the performance of Ocean Wilsons relative to Wilson Sons; this shows Ocean Wilsons trading towards the bottom of its historical range. The second shows the performance of Ocean Wilsons relative to both the FTSE All-Share and Bovespa indices. Here Ocean Wilsons has outperformed the FTSE All-Share since mid-2015, while trading within a range against the Brazilian index, albeit lagging the most recent uptick in that index.

Exhibit 13: Ocean Wilson relative to Wilson Sons

Exhibit 14: OCN relative to FTSE All-Share & Bovespa

Source: Thomson Datastream, Edison Investment Research

Source: Thomson Datastream, Edison Investment Research

Exhibit 13: Ocean Wilson relative to Wilson Sons

Source: Thomson Datastream, Edison Investment Research

Exhibit 14: OCN relative to FTSE All-Share & Bovespa

Source: Thomson Datastream, Edison Investment Research

Exhibit 15: Financial summary

Year-end 31 December

$m

2015

2016

2017e

2018e

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

508.9

457.2

489.1

507.8

Cash costs

(344.6)

(308.5)

(338.4)

(344.9)

EBITDA

 

 

164.3

148.7

150.7

162.8

Depreciation and amortisation

(53.2)

(52.6)

(57.2)

(57.5)

Operating Profit (before amort. and except).

111.1

96.1

93.7

104.7

Profit/loss on PPE

(1.3)

0.7

(2.0)

0.0

Share of results of JVs

4.8

8.1

1.9

2.5

Investment revenue

16.9

15.1

14.8

15.7

Other gains and losses

(1.4)

(4.1)

20.7

5.7

Finance costs

(45.4)

(0.6)

(13.1)

(13.4)

Exchange gains/losses on monetary items

(15.8)

2.3

1.9

1.9

Profit Before Tax (norm)

 

 

69.0

117.5

117.7

115.9

Income tax

(39.7)

(36.8)

(40.7)

(39.8)

Non-controlling interests

(13.8)

(35.6)

(29.1)

(31.8)

Profit After Tax (norm)

 

 

15.5

45.1

47.9

44.4

Average Number of Shares Outstanding (m)

35.4

35.4

35.4

35.4

EPS - normalised (c)

 

 

43.7

127.4

135.4

125.5

Dividend per share (c)

63.0

63.0

64.0

67.0

EBITDA Margin (%)

32.3

32.5

30.8

32.1

Operating Margin (%)

21.8

21.0

19.1

20.8

BALANCE SHEET

Fixed Assets

 

 

713.6

827.7

838.7

887.9

Intangible Assets

53.7

61.1

59.4

59.1

Tangible Assets

660.0

766.7

779.3

828.8

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

486.7

450.2

480.6

495.8

Stocks

28.3

15.4

16.5

17.1

Debtors

84.0

81.3

86.9

90.3

Cash

97.6

77.3

89.9

89.7

Trading investments

276.9

276.2

287.2

298.7

Current Liabilities

 

 

(126.6)

(123.3)

(127.1)

(129.9)

Creditors

(84.0)

(72.3)

(76.1)

(78.9)

Short term borrowings

(42.7)

(51.0)

(51.0)

(51.0)

Long Term Liabilities

 

 

(393.2)

(397.7)

(393.7)

(394.6)

Long term borrowings

(323.8)

(326.8)

(321.8)

(319.8)

Other long term liabilities

(69.4)

(70.8)

(71.9)

(74.8)

Net Assets

 

 

680.5

757.0

798.5

859.3

CASH FLOW

Operating Cash Flow

 

 

182.3

141.0

150.7

164.3

Net Interest

1.8

(0.5)

(1.1)

(0.6)

Tax

(22.7)

(34.4)

(35.9)

(34.8)

Capex

(64.8)

(93.0)

(68.0)

(98.0)

Acquisitions/disposals

0.0

(1.9)

0.0

0.0

Equity financing

0.0

0.0

0.0

0.0

Other (including divs from JV)

(33.1)

(5.3)

10.0

10.0

Dividends

(36.4)

(37.5)

(38.1)

(39.1)

Net Cash Flow

27.2

(31.6)

17.6

1.8

Opening net debt/(cash)

 

 

296.1

268.9

300.5

282.9

Other

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

268.9

300.5

282.9

281.1

Source: Ocean Wilsons Holdings accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Ocean Wilsons Holdings and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Ocean Wilsons Holdings and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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