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Research: Industrials
The search for a strategic partner is moving forward with the announcement that Advanced Maritime Transports SA (AMT) is to be acquired by Medserv via a share-for-share exchange, following which AMT’s owners will purchase the stakes of the majority holders and launch a voluntary bid for the minority holdings at €1.102. The bid represents a 10% premium to the deal for the majority shares. With no financial information provided it is difficult to assess the merits of the offer to shareholders and we await further details. Medserv expects to beat its forecast for FY19 and we have lifted our estimates for this year modestly. However, the challenges for the year ahead have increased and we are lowering our FY20 estimates as a result.
Medserv |
Moving to the next phase |
Q3 trading update |
Industrial support services |
10 December 2019 |
Share price performance
Business description
Next events
Analyst
Medserv is a research client of Edison Investment Research Limited |
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The search for a strategic partner is moving forward with the announcement that Advanced Maritime Transports SA (AMT) is to be acquired by Medserv via a share-for-share exchange, following which AMT’s owners will purchase the stakes of the majority holders and launch a voluntary bid for the minority holdings at €1.102. The bid represents a 10% premium to the deal for the majority shares. With no financial information provided it is difficult to assess the merits of the offer to shareholders and we await further details. Medserv expects to beat its forecast for FY19 and we have lifted our estimates for this year modestly. However, the challenges for the year ahead have increased and we are lowering our FY20 estimates as a result.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
28.8 |
(3.6) |
(5.6) |
0.0 |
N/A |
0.0 |
12/18 |
36.2 |
(3.4) |
(6.8) |
0.0 |
N/A |
0.0 |
12/19e |
66.4 |
2.4 |
5.2 |
0.0 |
21.2 |
0.0 |
12/20e |
44.6 |
2.3 |
5.1 |
2.0 |
21.6 |
1.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
AMT deal should secure the future
Although little detail on the proposed deal is available, it is in effect a reverse takeover with AMT becoming a subsidiary via a share exchange of newly issued Medserv shares, the owners of AMT then buying the majority holding of Medserv at €1.00 per share and launching a voluntary bid at €1.102 for the free float shares. The deal is expected to take three to four months to complete and is subject to conditions that must be approved by 31 January 2020. These include the passing of a resolution for the share exchange by the non-executive directors of Medserv and it being approved at EGM. As we do not know the AMT financials or the shares to be issued, we cannot comment on the deal’s merits. Based in Switzerland, AMT is a privately owned maritime logistics services provider with a broad geographic reach. The deal should provide significant opportunities to expand the global footprint of Medserv’s core operations in Integrated Logistics Support Services (ILSS) and Oil Country Tubular Goods (OCTG).
FY20 to be a year of consolidation
The Q3 trading statement indicates the FY19 company forecast should be beaten, with the Suriname contract now all expected to fall in FY19. However, bringing forward those revenues and delays to offshore Libyan structure projects to FY21 mean our FY20 revenues and EBITDA expectations are cut by c 20% and now decline. We expect growth to resume in Medserv’s current business in FY21.
Valuation: Rated for medium-term growth prospects
Although the reduction in expectations for FY20 is disappointing, projects and prospects are still expected to provide solid medium-term growth for both divisions. A FY20e P/E of 21.6x adequately reflects prospects and strategic developments.
AMT to become the strategic partner
AMT is based in Nyon, Switzerland, and is privately owned. Very little financial information is available, but the group offers logistics services including end-to-end logistics (land, sea and air), marine services and personnel services. We believe it has around 600 employees, around twice the number of Medserv.
Subject to the various conditions and any required regulatory approvals being met, the deal would result in a combined group with four key operating activities: End-2-End Logistics, Shore Base Logistics (ILSS), OCTG Management Services, and non-O&G Logistics. It will have around 900 employees with an operational presence in around 26 countries across four continents. We would expect the senior executives to assume most of the leadership positions within the enlarged company.
Commenting on the proposed deal Michel Dubois, CEO of AMT said “Our goal is to further grow our footprint in African Energy and non-O&G sectors, to become the undisputed leader in the Mediterranean O&G Logistics and be the company of choice for supply chain management of OCTG”.
Current trading and outlook
Q319 performance is summarised in Exhibit 1 below. The Suriname contract continues to drive substantial growth in ILSS, although Cyprus and Egypt have also contributed significant increases in sales as drilling activities for the new discoveries in the eastern Mediterranean gather pace. OCTG also showed strong growth of 25% as activity in Iraq finally started to improve.
Exhibit 1: Medserv Q319 trading highlights
€m |
Q318 |
Q319 |
9M19 |
FY18 |
FY19e |
FY19e* |
Turnover |
||||||
- ILSS |
4.5 |
14.4 |
37.0 |
21.5 |
50.4 |
48.7 |
- OCTG |
3.8 |
4.8 |
11.7 |
14.2 |
15.5 |
15.0 |
- Photovoltaic (PV) farm |
0.1 |
0.1 |
0.4 |
0.5 |
0.5 |
0.5 |
Group |
8.4 |
19.3 |
49.1 |
36.2 |
66.4 |
64.2 |
EBITDA (co definition) |
1.5 |
3.2 |
9.3 |
7.3 |
14.3 |
14.1 |
EBITDA margin (%) |
17.9 |
16.6 |
18.9 |
20.2 |
21.5 |
22.0 |
% change |
||||||
- ILSS |
220% |
134% |
||||
- OCTG |
26% |
9% |
||||
- Photovoltaic (PV) farm |
0% |
0% |
||||
Group |
130% |
83% |
||||
EBITDA |
113% |
96% |
Source: Company reports, Edison Investment Research estimates. Note: *Company guidance.
The Suriname contract is lower margin, which means Medserv will exceed its previous revenue and EBITDA expectations, albeit leading to a slightly lower EBITDA margin that is reflected in our revised estimates. The EBITDA margin for the group fell to 16.6% in Q319 compared to 17.9% in Q318, reflecting the lower-margin nature of the Suriname contract. Nevertheless, allowing for some year-end contract risk retirement and provision releases, we expect an improvement in Q419 to deliver the expected overall improvement in the full-year margin.
All of the €30m of revenue and profit from the Suriname contract is expected to be booked this year, as following an unsuccessful initial drilling programme it has been completed and suspended slightly ahead of schedule. The Cyprus and Egypt offshore support base contracts have also performed strongly. These factors offset a slightly weaker than expected performance in Malta as projects have slipped once again. In addition, METS is performing well, especially in Iraq, which has moved into profit as activity has picked up. Medserv expects to achieve its forecast for FY19 (see Exhibit 1) and we have raised our estimates accordingly, with revenues 5% higher and our EBITDA estimate raised by 2%.
Looking ahead to FY20, delays to projects for Malta and the earlier than expected completion of the Suriname contract by the end of 2019 will lead to an overall decline in both revenues and profitability; we had previously expected a modest improvement in EBITDA. Because there will be no residual income from the Suriname contract as it now falls in FY19, there is a shortfall of €5m relative to our previous revenue estimates, albeit at a below-average margin. In addition, the major structures service contracts for Bahr Essalam Phase II offshore Libya appear to have been deferred until FY21. Together with other modest contract delays, we now expect Malta base revenues to be some €6m lower than previously with growth resuming in FY21. Cyprus, Egypt and METS are all expected to show good growth. In Egypt we expect a second IOC (international oil company) support base contract to be secured and contribute in FY20. The Abu Dhabi OCTG supply chain management contracts have yet to be secured but would be incremental to our forecasts.
For FY20, the end of the Suriname contract was always going to challenge revenue growth but the early completion and the deferral of offshore Libya now reduce EBITDA and PBT year-on-year. We expect growth in sales and earnings to be re-established in FY21.
Exhibit 2: Medserv earnings estimate revisions
Year end 31 December (€m) |
2019e |
2019e |
|
2020e |
2020e |
|
|
Prior |
New |
Change |
Prior |
New |
Change |
Malta operation |
13.9 |
11.6 |
-16.7% |
18.8 |
12.4 |
-34.0% |
Cyprus |
5.6 |
5.6 |
0.0% |
10.6 |
9.0 |
-14.7% |
Egypt |
3.3 |
3.3 |
0.0% |
5.9 |
5.9 |
0.0% |
Suriname |
25.0 |
30.0 |
+20.0% |
5.0 |
0.0 |
-100.0% |
METS |
14.8 |
15.5 |
4.4% |
16.4 |
16.8 |
2.0% |
Photovoltaic farm |
0.5 |
0.5 |
0.0% |
0.5 |
0.5 |
0.0% |
Revenues |
63.1 |
66.4 |
5.3% |
57.2 |
44.6 |
-22.1% |
|
|
|
|
|
|
|
EBITDA adjusted (company definition) |
14.0 |
14.3 |
1.7% |
15.7 |
12.9 |
-17.9% |
EBITDA adjusted (Edison definition) |
13.1 |
13.4 |
1.8% |
14.8 |
12.0 |
-19.0% |
Depreciation |
(8.6) |
(8.9) |
2.7% |
(8.7) |
(7.7) |
-11.3% |
Other operating income |
0.9 |
0.9 |
0.0% |
0.9 |
0.9 |
0.0% |
Operating profit (adjusted) |
5.4 |
5.4 |
0.0% |
7.0 |
5.2 |
-26.1% |
Exceptionals (including PPA amortisation) |
(1.8) |
(1.8) |
0.0% |
(1.8) |
(1.8) |
0.0% |
Operating profit (reported) |
3.6 |
3.6 |
0.1% |
5.2 |
3.4 |
-35.1% |
Profit before tax (adjusted) |
2.4 |
2.4 |
-0.3% |
4.2 |
2.3 |
-44.6% |
EPS - underlying continuing (c) |
5.2 |
5.2 |
-0.3% |
8.9 |
5.1 |
-43.1% |
DPS (c) |
0.0 |
0.0 |
0.0% |
2.0 |
2.0 |
0.0% |
Net debt |
50.0 |
50.3 |
0.7% |
43.2 |
44.9 |
3.8% |
Source: Edison Investment Research estimates
Exhibit 3: Financial summary
€m |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
28.8 |
36.2 |
66.4 |
44.6 |
Cost of Sales |
(18.2) |
(23.6) |
(47.5) |
(29.0) |
||
Gross Profit |
10.6 |
12.6 |
18.9 |
15.6 |
||
EBITDA (Edison defined) |
|
|
3.7 |
6.3 |
13.4 |
12.0 |
Operating Profit (before amort. and except.) |
|
|
(1.2) |
(0.3) |
5.4 |
5.2 |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(4.4) |
(5.4) |
(3.6) |
(3.7) |
||
Other |
0.8 |
1.3 |
0.9 |
0.9 |
||
Operating Profit |
(4.1) |
(3.5) |
3.6 |
3.4 |
||
Net Interest |
(3.9) |
(5.4) |
(4.8) |
(4.8) |
||
Profit Before Tax (norm) |
|
|
(3.6) |
(3.4) |
2.4 |
2.3 |
Profit Before Tax (FRS 3) |
|
|
(8.0) |
(8.8) |
(1.2) |
(1.4) |
Tax |
0.4 |
(0.7) |
(0.1) |
(0.1) |
||
Profit After Tax (norm) |
(3.2) |
(4.1) |
2.3 |
2.2 |
||
Profit After Tax (FRS 3) |
(7.6) |
(9.5) |
(1.3) |
(1.5) |
||
Average Number of Shares Outstanding (m) |
53.7 |
53.7 |
53.7 |
53.7 |
||
EPS - normalised (c) |
|
|
(5.55) |
(6.76) |
5.2 |
5.1 |
EPS - normalised and fully diluted (c) |
|
|
(5.55) |
(6.76) |
5.2 |
5.1 |
EPS - (IFRS) (c) |
|
|
(13.8) |
(16.8) |
(1.5) |
(1.9) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
2.0 |
||
Gross Margin (%) |
36.8 |
34.8 |
28.5 |
35.0 |
||
EBITDA Margin (%) |
12.8 |
17.3 |
20.1 |
26.8 |
||
Operating Margin (before GW and except.) (%) |
-4.1 |
-0.9 |
8.1 |
11.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
122.3 |
124.7 |
118.6 |
112.3 |
Intangible Assets |
14.5 |
13.2 |
11.7 |
10.2 |
||
Tangible Assets |
31.9 |
33.2 |
32.9 |
32.3 |
||
Right of use asset |
75.9 |
78.3 |
74.1 |
69.8 |
||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
31.0 |
32.1 |
39.7 |
36.7 |
Stocks |
1.2 |
1.3 |
1.8 |
1.2 |
||
Debtors |
12.2 |
12.8 |
17.7 |
14.3 |
||
Cash |
3.6 |
5.6 |
6.6 |
9.3 |
||
Other |
13.9 |
12.4 |
13.7 |
11.9 |
||
Current Liabilities |
|
|
(9.4) |
(16.2) |
(16.2) |
(12.3) |
Creditors |
(7.3) |
(10.9) |
(16.2) |
(12.3) |
||
Short term borrowings |
(2.0) |
(5.3) |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(115.8) |
(121.9) |
(124.8) |
(122.0) |
Long term borrowings |
(50.8) |
(54.0) |
(57.0) |
(54.1) |
||
Lease liabiliites |
(25.9) |
(28.7) |
(28.7) |
(28.7) |
||
Other long term liabilities |
(39.1) |
(39.2) |
(39.2) |
(39.2) |
||
Net Assets |
|
|
28.1 |
18.7 |
17.4 |
14.7 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
1.8 |
6.6 |
10.7 |
11.3 |
Net Interest |
(2.4) |
(3.1) |
(3.0) |
(2.8) |
||
Tax |
0.4 |
(0.7) |
(0.1) |
(0.1) |
||
Capex |
(2.6) |
(6.9) |
(4.3) |
(2.9) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financing |
0.6 |
(0.5) |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(2.3) |
(4.5) |
3.4 |
5.5 |
||
Opening net debt/(cash) |
|
|
47.0 |
49.2 |
53.7 |
50.3 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
49.2 |
53.7 |
50.3 |
44.9 |
Source: Company reports, Edison Investment Research
|
|
Research: Financials
DeA Capital (DEA) is exploiting its financial strength and leading Italian position in alternative asset management (AAM) to grow and internationalise its AAM platform, extend its customer reach and enhance its product capability. The completed agreements with Quaestio Group mark an important step in this process. Before any contribution from Quaestio, the Q319 financial report shows year-on-year growth in alternative assets under management (AUM) and underlying earnings.
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