Analyst: Victor Sula, Ph.D. Initial Report July 8th, 2009
GLBL daily
7/08/09
8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 volume
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Millions
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MARKET DATA
Share Statistics (01-Jul-09) Symbol Current price Low/ High 52 weeks Average Volume Market Cap Dil. Shares Outstanding
2007
2008
% Chg
Q1 2008
7.9%
Q1 2009
% Chg
GLBL
Revenues, $ Mn.
992.5
1,071
301.5
269.5
-10.6%
$5.57
Gross margin
27.5%
-1.3% -28.8% 18.0%
16.8%
-1.2%
$2.09–16.20 Operating margin 19.7% -10.2% -29.9% 11.1% 16.1% -11.0% -27.1% 8.7% Net margin 1,720,570
11.6%
0.5%
7.1%
-1.6%
0.17
-22.7%
$634.3 Mn 113.88 Mn
EPS, $
1.36
-1.03 -175.7%
0.22
Recommendation Recent declines in energy prices and a significant downturn in the worldwide economy has impacted the offshore construction industry; Global Industries Ltd. (GLBL) is experiencing reluctance on the part of its customers to move forward with previously planned projects. While the industry’s conditions remain challenging, the Company reported a decent Q1 2009 by turning to profitability and proving that the implemented cost control and effective project management measures are paying off. In addition, over the long term, the industry outlook is positive; GLBL is well positioned as a leading offshore construction company and considering the Company is trading near its 52-week low, we rate GLBL as a “Speculative Buy.” The Company has good margins, a solid orders backlog and decent debt level, and is poised for revenue growth in these tough times when other companies struggle to minimize their sales decline. Strong fundamentals and favorable long-term industry outlook make us to rate ATRO as a Speculative Buy. Global Industries Ltd (Nasdaq: GLBL)
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Analyst: Victor Sula, Ph.D. Initial Report July 8th, 2009
Global Industries Ltd. (GLBL), together with its subsidiaries, provides offshore construction, engineering, project management and support services to the oil and gas industry worldwide. The Company’s business consists of two principal activities: (1) Offshore Construction Services, which include derrick, pipeline construction and platform installation, as well as removal services. GLBL installs steel pipe by either the conventional or the reel method of pipe-laying using either manual or automatic welding processes; and (2) Subsea Services, which include diving and diver-less intervention, periodic inspections of pipelines and platforms, repairs and maintenance to pipelines and platforms and other marine support services. The Company provides services from shallow water to water depths of up to 10,000 feet. GLBL has six reportable segments based on international areas it operates: North America Offshore Construction Division, North America Subsea, Latin America, West Africa, Middle East (including the Mediterranean) and Asia Pacific/India.
Global Industries Ltd (Nasdaq: GLBL)
Highlights For the full-year 2008, the Company’s revenue rose to $1,070 million from $992.5 million in 2007. However, due to the global economic downturn and the decline in business activity, GLBL incurred large idle vessel costs, which resulted from weather and mechanical downtime, as well as delays in delivering the needed vessel machine equipment. This resulted in a net loss of $117.4 million, or a net loss per share of $1.03. Analysts surveyed by Thomson Reuters expect GLBL to earn $0.62 per share on revenue of $1,002 million this year. For 2010, analysts estimate profit to increase to $0.77 per share on revenue of $1,070 million. In 2007, GLBL won a contract with Saudi Aramco, a global leader in the petroleum industry, for construction of the Berri water injection and Qatif crude oil offshore pipeline projects. The contract was valued in excess of $200 million. Initially, offshore installation was scheduled to begin in September 2007 and the project as deemed to continue into the later part of 2008. However, it was postponed for a while. At the end of 2008, the execution of the Berri and Qatif project in Saudi Arabia was back on track. The Berri and Qatif project progressed as planned with GLBL’s revised estimate, and the Company recorded a $2.2 million improvement in the anticipated cost to complete this project due to better than the anticipated productivity during the first quarter of 2009. As of March 31, 2009, the Company’s backlog totaled approximately $394.0 million ($358.8 million for international regions and $35.2 million for the Gulf of Mexico); $372.0 million of this backlog is scheduled to be performed in 2009. In addition, the Company has been awarded with other contracts since the end of the quarter. GLBL has been contracted by Shell Offshore Inc. for the decommissioning and abandonment of an 8-pile production platform located in Eugene Island 331 A in approximately 250 FSW in the Gulf of Mexico. The Company was awarded a twoyear contract worth $35 million with The Shipping Corporation of India Ltd. for diving services, personnel and equipment maintenance to be performed offshore India aboard three Oil and Natural Gas Corporation (ONGC) vessels. The contract is valued at approximately $35 million and has an option to be extended for up to six additional months. In 2008, the Company expanded its fleet with the addition of two multi-service vessels. In addition, GLBL is building two new generation derrick/pipelay vessels, designated as the “Global 1200” and “Global 1201” with expected delivery dates in 2010 and 2011, respectively. The Company operates a fleet of 11 derrick lay barges, one derrick barge, five multi service vessels, four dive support vessels, two offshore supply vessels and two 2
Analyst: Victor Sula, Ph.D. Initial Report July 8th, 2009
STOCK PERFORMANCE (%) Price Change
GROWTH (%)
Revenues EPS
3 Mo.
1 Yr.
3 Yr. (Ann)
92.3
-68.9
-66.7
12 Mo.
3 Yr CAGR
7.8 n/m
15.8 n/m
Last Qtr. -10.6 -22.7
RETURN ON EQUITY (%)
GLBL
Ind Avg
S&P 500
TTM 5 Yr. Avg.
-14.7 9.2
15.4 17.4
20.4 20.1
P/S comparison
cargo launch barges. All of GLBL’s major construction vessels are designed to perform more than one type of construction project, including pipelay, pipe bury, derrick, dive support and deepwater lowering. Nine of these vessels are capable of lifts of 500 tons or more, making them suitable for very heavy lifts, such as offshore platform installations. Due to slowdown in oil and gas project activity worldwide in 2008, the Company took a number of steps to closely control its costs, cash outflows and to maximize its accounts receivable collection periods. Also in an effort to minimize the impact on its operating results, GLBL decided to curtail its operations in West Africa since there were no new projects for West Africa in the Company’s backlog.
Financial Analysis In 2008, the Company reported sales of $1,070 million or a 7.8% increase from $992.5 million in 2007, primarily due to higher activity in the Middle East, Asia Pacific/India and Latin America. In 2008, the Company provided offshore marine construction services to approximately 60 customers. Petroleos Mexicanos (PEMEX), Saudi Aramco and Petroleo Brasileiro, S.A. (Petrobras) accounted for 10%, 14% and 15% of 2008 consolidated revenues. GLBL’s gross profit decreased by $286.3 million, or 105%, between 2008 and 2007 to a $13.6 million gross loss for 2008 compared to $272.7 million gross profit for 2007. The decrease primarily reflects the adverse effects of the losses incurred on the Berri and Qatif project in Saudi Arabia and the Camarupim project in Brazil. For the first quarter of 2009, GLBL’s consolidated revenues were $269.5 million, compared $301.5 million for the same quarter last year; an 11% decline in revenues was primarily due to lower activity in Middle East and Asia Pacific/India segments. Gross profit was $45.4 million in the first quarter 2009, compared to $54.3 million in the same quarter last year. Net income was $19 million or $0.17 per diluted share in the first quarter of 2009 compared to $26.1 million or $0.22 per diluted share in the first quarter of 2008.
Source:Reuters.com
Global Industries Ltd (Nasdaq: GLBL)
Net cash used by operating activities was $119.2 million for the year ended December 31, 2008, compared to net cash generated by operating activities of $267.7 million during 2007. As a result of focusing on receivable collections and controlling spending, the Company finished the first quarter of 2009 with $351 million in cash. The Company has a total debt of $294 million, which includes a $290 million of Senior Convertible Debentures and which carry an interest rate of 2.75% per annum with semi-annual interest payments. These debentures are convertible into cash, and if applicable, into shares of the Company’s common stock. 3
Analyst: Victor Sula, Ph.D. Initial Report July 8th, 2009
FY07
FY08
INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)
992.5 272.8 213.9 213.9 160.0
1,071 -13.6 -109.6 -109.6 -117.4
BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)
723.5 1,589 394.3 853.6
287.7 1,486 390.3 723.7
PROFITABILITY Gross Margin Operating Margin Asset Turnover Return on Assets Return on Equity
27.5% 19.7% 0.75 10.1% 18.7%
-1.3% -10.2% 0.70 -7.9% -16.2
DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage
3.90 31.6% 13.4 16.0
2.16 35.0% 13.6 n/m
117.8 1.36 7.25 n/a 1,978,973
113.7 -1.03 6.36 84% 3,057,069
SHARE DATA Dil. Shar. Outst.(mil) EPS Book value / share Institutional Own % Avg Daily Volume
Source: SEC filings; analyst estimates.
Q1 08
Q1 09
INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)
301.5 54.3 35.9 35.9 26.1
269.5 45.4 29.5 29.5 19.0
BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)
301.5 1,605 392.3 884.9
269.5 1,519 294.0 809.7
Source: SEC filings
Global Industries Ltd (Nasdaq: GLBL)
Industry analysis Whether oil prices will stabilize at $100, $150 or $200 a barrel, worldwide energy demand will continue to rise. Since 1990, worldwide oil consumption has grown at a CAGR of 1.5%. Future estimates call for a similar rate of growth for the next 20 years. For natural gas, the numbers are slightly higher at 2.4% since 1990 and 1.7% over the next 20 years. The increased energy demand stemming from consecutive years of economic growth, the growing battle to overcome depleting reserves and new technological advances that improve technical and economic feasibility of deepwater developments have encouraged operators to invest billions annually chasing offshore frontier. Recent years have seen the growth and formalization of the global deepwater offshore industry. Deepwater oil and gas production is increasing rapidly, and output is expected to increase by almost 80% over the period to 2011. From 4.5 million barrels per day in 2007, deepwater oil production will grow to nearly 8 million barrels per day in 2011, while deepwater gas production will increase from 1.6 to more than 3 million barrels per day of oil equivalent over the same period. The ‘Golden Triangle’ of deepwater, namely the Africa, Gulf of Mexico and Brazilian areas, still accounts for 85% of global deepwater expenditures. Africa is expected to be the leading deepwater development area over the 2008–2012 period, accounting for nearly 40% of the global deepwater spend. The North America region is expected to account for more than 25% of deepwater development capex over the 2008–2012 periods. Asian region is expected to account for 10% of deepwater Capex during this time. Despite these positive outlooks, recent declines in energy prices and a significant downturn in the worldwide economy is impacting the offshore construction industry. However, the price of oil has risen sharply so far this year and could be poised to go higher as data suggests that the worst of the recession may be over, reviving demand for oil.
Analyst opinion Despite the challenging industry environment, the Company remains focused on performance improvement by executing the ongoing projects, building additional backlog, implementing cost cutting initiatives, and conserving the cash reserves. The Company is in the process of expanding and updating its fleet so that it can offer superior value services while continue focusing 4
Analyst: Victor Sula, Ph.D. Initial Report July 8th, 2009
on geographical expansion. Consensus Estimates GLBL
FY 2009 31-Dec-09
FY 2010 31-Dec-10
EPS, $ Revenue, $Mil
0.62 1,002
0.77 1,060
consensus estimates are provided by Thomson Financial
Rev. consensus estimates, $Mil. Ticker Symbol ACGY DVR OII SPN HERO ATW HLX
Revenue, $ Mn
2009
2010
%Chg
2,088 862.1 1,855 1,618 848.8 582.3 1,849
2,108 865.8 1,973 1,673 893.4 632.3 1,937
1.0% 0.4% 6.4% 3.4% 5.3% 8.6% 4.8% 4.8%
Median 1,002
GLBL
1,060
The most recent quarter results showed that GLBL turned to profitability, reporting decent results and maintaining a strong balance sheet. The Company trades at a discount compared to its peers and have the potential to rise up as it currently trades near its 52-week low. Comparative analyses Company Name Jul-02-2009
EPS. consensus estimates, $ EPS, $
2009
Like any contractor, GLBL’s earnings are quite volatile and depend on contracting some occasional big projects. A couple of the Company’s projects have gone badly in 2008, causing two consecutive quarters of losses. The Company expects to polish off $200 million Berri and Qatif projects for Saudi Aramco during 2009, and to turn profitable.
5.8%
Source: Thomson Reuters.
Ticker Symbol
While the oil sector continue to see weakness, one area of oil infrastructure, such as marine construction services, looks to remain solid no matter of oil’s price. Oil companies will continue to spend money for maintenance or repairs on their significant infrastructure despite the oil prices movement. Moreover, over the long-term, the spending on pipeline construction, pipelay, pipe burial and other services are expected to increase. Worldwide offshore spending is expected to reach nearly $100 billion by 2015, up from approximately $70 billion today.
2010
%Chg
ACGY DVR OII SPN HERO ATW HLX
0.70 0.88 3.31 2.02 -0.31 3.57 1.06
0.77 0.88 3.5 2.11 0.08 4.19 1.24
10.0% 0.0% 5.7% 4.5% n/m 17.4% 17.0%
Median
1.06
1.24
7.9%
GLBL
0.62
0.77
24.2%
Ticker Symbol
Acergy SA ACGY Cal Dive International Inc. DVR Oceaneering International Inc. OII Superior Energy Services Inc. SPN Hercules Offshore Inc. HERO Atwood Oceanics Inc ATW Helix Energy Solutions Group HLX Inc.
Price per Share, $ 10.18 8.33 43.64 16.89 3.47 23.62 9.73
P/E Mrkt. Cap. $ Mn 2009 2010 1,860 785.5 2,390 1,320 305.5 1,520 958.2
Median Global Industries, Ltd.
GLBL
5.57
634.3
14.54 9.47 13.18 8.36 n/m 6.62 9.18
13.22 9.47 12.47 8.00 43.38 5.64 7.85
9.32
9.47
8.98
7.23
Source: Thomson Reuters; Yahoo! Finance.
Source: Thomson Reuters.
Global Industries Ltd (Nasdaq: GLBL)
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Analyst: Victor Sula, Ph.D. Initial Report July 8th, 2009
Disclaimer DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice. The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice. The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities. We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them. Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report. Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research. Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing. Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements. We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.
Global Industries Ltd (Nasdaq: GLBL)
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