Medserv — Performing to plan

MedservRegis (MSE: MDS)

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Last close As at 30/01/2023

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Market capitalisation

35m

Research: Industrials

Medserv — Performing to plan

Medserv’s latest interim statement continues to demonstrate how the company has leveraged end-market strength and built out its geographic reach. The order book is growing and there is momentum in both divisions. The company expects to meet FY18 guidance.

Analyst avatar placeholder

Written by

Annabel Hewson

Industrials

Medserv

Performing to plan

Trading update

Industrial support services

30 November 2018

Price

€1.20

Market cap

€64m

Net debt (€m) at 30 June 2018

53.0

Shares in issue

53.7m

Free float

35%

Code

MDS

Primary exchange

Malta SE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

17.7

10.1

7.1

Rel (local)

17.1

5.3

5.7

52-week high/low

€1.26

€1.00

Business description

Medserv is a Malta-based provider of integrated offshore logistics and services in support of drilling operations in the Mediterranean. The acquisition of the METS companies in February 2016 diversified the company into onshore steel tube stockholding and servicing for countries in the Middle East.

Next event

FY results

April 2019

Analyst

Annabel Hewson

+44 (0)20 3077 5700

Medserv is a research client of Edison Investment Research Limited

Medserv’s latest interim statement continues to demonstrate how the company has leveraged end-market strength and built out its geographic reach. The order book is growing and there is momentum in both divisions. The company expects to meet FY18 guidance.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

32.8

(1.3)

(2.1)

0.0

N/A

N/A

12/17

28.8

(3.6)

(5.6)

0.0

N/A

N/A

12/18e

36.0

(1.4)

(1.4)

2.0

N/A

1.7

12/19e

39.3

2.2

4.7

2.0

25.5

1.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Momentum across both divisions

The Integrated Logistic Support Services (ILSS) segment is showing its credentials in the East Mediterranean. Ongoing activity from the Medserv Cyprus shore base plus Egypt reflects the improved market backdrop and the company’s success in the region. Recent order success now includes Latin America, with the order from Suriname, which we discussed in our note this month. However, in Portugal, while Medserv’s facilities had been in mothball mode, as environmental issues persisted regarding offshore exploratory drilling, it has now been decided to close down the base by year-end. The closure is estimated to have minimal impact on forecasts. For Oil Country Tubular Goods (OCTG), activity remains focused on the Middle East, with encouraging contributions from both Oman and the United Arab Emirates. However, Iraq remains affected by domestic issues, and while this business unit has seen some periods of strength, this has not proved continuous and hence the new strategy here will be announced in Q119. OCTG is also looking to expand its geographic footprint, as the company awaits news of the tender in Uganda. Overall, Medserv believes that it will meet its stated guidance of €6.8m EBITDA for FY18.

More in the pipeline

End-market dynamics continue to play to Medserv’s strengths and we welcome the reiteration of guidance. The growing order backlog includes longer duration contracts, building visibility and greater confidence in forecasts. Ongoing tendering activity is also broadening the company’s geographical horizons. Medserv continues to review and adapt its portfolio to best address market opportunities and is showing that it will make the investment or strategic changes required. Medserv is still seeking a strategic purchaser for all or part of the majority shareholding and, while there was no update at the H118 report, we believe there is no time pressure.

Valuation: Market success supports higher price

Order success is bringing new territories on stream to support revenue growth. We maintain our forecasts and continue to believe that financial performance in FY18 will support a dividend. Our DCF-based fair value remains at €1.56 per share.

Exhibit 2: Financial summary

€m

2015

2016

2017

2018e

2019e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

42.7

32.8

28.8

36.0

39.3

Cost of Sales

(29.9)

(22.9)

(18.2)

(21.8)

(22.9)

Gross Profit

12.8

9.9

10.6

14.2

16.4

EBITDA

 

 

10.3

5.0

3.7

6.5

10.5

Operating Profit (before amort. and except.)

 

 

7.6

1.6

(1.2)

1.6

5.4

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.1)

(1.2)

(4.5)

(1.6)

(3.1)

Other

(0.2)

0.0

0.0

0.0

0.0

Operating Profit

7.3

0.4

(5.7)

(1.6)

2.3

Net Interest

(1.5)

(2.8)

(2.4)

(3.1)

(3.3)

Profit Before Tax (norm)

 

 

6.1

(1.3)

(3.6)

(1.4)

2.2

Profit Before Tax (FRS 3)

 

 

5.8

(2.5)

(8.1)

(4.6)

(0.9)

Tax

(1.3)

5.4

0.4

0.5

0.1

Profit After Tax (norm)

4.8

4.1

(3.2)

(1.0)

2.3

Profit After Tax (FRS 3)

4.5

3.0

(7.6)

(4.2)

(0.9)

Average Number of Shares Outstanding (m)

46.1

52.8

53.7

53.7

53.7

EPS - normalised (c)

 

 

9.7

(2.1)

(5.6)

(1.4)

4.7

EPS - normalised and fully diluted (c)

 

 

9.7

(2.1)

(5.6)

(1.4)

4.7

EPS - (IFRS) (c)

 

 

8.9

5.9

(14.0)

(7.3)

(1.2)

Dividend per share (c)

4.3

0.0

0.0

2.0

2.0

Gross Margin (%)

30.1

30.2

36.8

39.5

41.7

EBITDA Margin (%)

24.1

15.1

12.8

18.0

26.7

Operating Margin (before GW and except.) (%)

17.9

4.8

-4.2

4.6

13.8

BALANCE SHEET

Fixed Assets

 

 

24.0

51.4

46.4

44.2

42.1

Intangible Assets

0.0

17.2

14.5

13.2

12.1

Tangible Assets

24.0

34.3

31.9

31.0

30.1

Investments

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

57.1

70.0

106.9

108.6

111.0

Stocks

0.0

1.3

1.2

1.5

1.7

Debtors

12.2

12.8

12.2

14.0

15.3

Cash

1.0

6.2

3.6

2.6

5.6

Other

43.9

49.7

89.8

90.4

88.3

Current Liabilities

 

 

(13.3)

(8.3)

(9.4)

(7.7)

(8.3)

Creditors

(9.5)

(7.2)

(7.3)

(7.7)

(8.3)

Short term borrowings

(3.8)

(1.1)

(2.0)

0.0

0.0

Long Term Liabilities

 

 

(56.7)

(86.8)

(115.8)

(122.2)

(123.8)

Long term borrowings

(22.4)

(52.1)

(50.8)

(57.2)

(58.9)

Other long term liabilities

(34.3)

(34.7)

(65.0)

(65.0)

(65.0)

Net Assets

 

 

11.1

26.4

28.1

22.9

20.9

CASH FLOW

Operating Cash Flow

 

 

10.4

6.0

1.8

(0.5)

8.1

Net Interest

(1.5)

(2.8)

(2.4)

(3.1)

(3.3)

Tax

(1.3)

(0.0)

0.4

0.5

0.1

Capex

(3.8)

(1.7)

(2.6)

(2.3)

(2.5)

Acquisitions/disposals

(2.6)

(34.5)

0.0

0.0

0.0

Financing

0.5

11.2

0.6

0.0

0.0

Dividends

(2.0)

0.0

0.0

0.0

(1.1)

Net Cash Flow

(0.3)

(21.8)

(2.3)

(5.4)

1.4

Opening net debt/(cash)

 

 

24.9

25.2

47.0

49.2

54.6

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(0.0)

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

25.2

47.0

49.2

54.6

53.2

Source: Medserv, Edison Investment Research

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This report has been commissioned by Medserv and prepared and issued by Edison, in consideration of a fee payable by Mdeserv. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Medserv and prepared and issued by Edison, in consideration of a fee payable by Mdeserv. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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 4, 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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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