Editorial on FGH:
oilandgasinvestor.com
Are Friede Goldman Halter Execs Counting Sheep, Strokes or Stock-Price Returns?
Does Friede Goldman Halter?s (NYSE: FGH) chairman and chief executive, J.L. Holloway, lie awake at night thinking of ways to improve his golf game because his company is not worth repair? Does the company?s president and chief operating officer, do the same, but about his tennis game?
?Not true,? says Jefferies & Co. oil-service analyst Mark W. Kellstrom in a report on the Gulfport, Miss.-based maritime and offshore-energy equipment designer and manufacturer. ?Actually, as Friede Goldman?s largest shareholder and a recent purchaser of stock in the open market, Holloway has spent a significant amount of time focusing on strengthening FGH?s balance sheet under an asset-sale program devised by senior management and dubbed the ?liquidity campaign.??
Friede Goldman was a stock starlet when it went public in 1997 like two other offshore-fabrication firms, Gulf Island Fabricators (Nasdaq: GIFI) and Unifab International (Nasdaq: UFAB). FGH has tumbled from nearly $50 to about $8 currently. GIFI soared to about $35 and is currently $17; UFAB, to more than $40 and currently about $7. Friede Goldman was based in Jackson, Miss., until merging last year with Gulfport-based Halter Marine.
Kellstrom has initiated coverage of FGH with a Buy rating and a target price of $15. He says it is also untrue that Ocean Rig ASA cannot pay Friede Goldman for construction of two Bingo 9000s deepwater drilling rigs, which would lead to a major liquidity problem for Friede Goldman in its fourth quarter.
It is also untrue that the Amethyst rigs are more overbudget than believed to be and that overruns will impinge on the company?s liquidity in the second half of this year or during 2001.
Friede Goldman?s commercial lenders will not pull the company?s revolving-credit agreement because of overbudget construction activity, Kellstrom adds. Instead, ?the sale of the vessel-repair business will allow Friede to pay down most of the bank facility anyway.?
The company recently signed a definitive agreement to sell its vessel-repair unit to Bollinger Shipyards Inc. , Lockport, La., for $80 million.
?The completion of this $80-million transaction and an additional $33 million in tax refunds?during 2000 are anticipated to provide significant additional liquidity for Friede Goldman Halter as it enters a strengthening marketplace,? John Alford, the president who does not lie awake at night thinking of his backhand, said in the press release about the sale.
And, Kellstrom says, the company will get more construction jobs, despite its delay in completing four newbuilds for Ocean Rig and Petrodrill.
The following is true, he says.
--Pro forma the merger with Halter, the company is the clear leader in North American drilling-rig and vessel construction.
--Aging of the world rig fleet leads to increased repair and retrofit business.
--The combined companies should be able to realize better pricing on new contracts due to consolidation.
--Cost reductions enhance near-term earnings and may lead to additional margin improvement over time.
--Diversification from energy-related business may smooth the company?s cash flow. The company recently won a contract to build a cargo vessel for Pasha Hawaii Transport Lines for $70 million, and one for $12 million to design and build 22 shipboard cargo cranes to be installed on container ships under construction in China and Russia.
--Expansion into floating production storage and offloading systems (FPSOs) adds to long-term upside. In use offshore West Africa and in the North Sea, FPSOs are not allowed in U.S. waters. The environmental potential is being studied at this time, according to the U.S. Coast Guard.
Investment risks, Kellstrom says, includes the management?s loss in recent months of some credibility with investors and clients; a slower-than-expected increase in new construction activity; escalated difficulties with Ocean Rig and Petrodrill while Friede Goldman has not completed remaining newbuild projects for the two companies; and lumpy earnings.
But no lumpy mattress.
--Nissa Darbonne, Managing Editor, Oil and Gas Investor; Editor, Oil & Gas Interests |
