Bottom of the Barrel: Float Your Small-Cap Boat With Trico Marine
By Christopher Edmonds
Special to TheStreet.com
05/01/2002 07:04 AM EDT
A rising energy tide should help to lift the shares of Trico Marine Services (TMAR:Nasdaq - news - commentary - research - analysis). Much like most energy service companies, Trico Marine has felt the past year's pinch of lower oil and natural gas prices in the form of reduced demand, but that may change as prices inch toward a bottom.
This Louisiana-based company provides support boats to the oil and gas industry, primarily in the Gulf of Mexico, the North Sea, Latin America and West Africa.
Its fleet of more than 90 vessels serves companies that explore and drill for energy, offering such services as transporting drilling materials, supplies and crews to drilling rigs and other offshore facilities; towing drilling rigs and equipment from one location to another; and supporting the construction, installation and maintenance of offshore facilities.
Near a Bottom
When Trico announced Monday a first-quarter loss of 13 cents a share, vs. the year-ago 5-cent profit, Trico President and CEO Thomas E. Fairley blamed it on a lousy operating environment. "The weakness in the Gulf of Mexico market, which carried over from the fourth quarter and continues today, is the biggest factor in our first-quarter results," he said.
However, pricing is getting close to a trough, presenting a longer-term opportunity for Trico investors. "Trico believes dayrates for Gulf of Mexico supply vessels have bottomed," says Jim Wicklund, oil services analyst at Banc of America Securities. He rates the stock market perform, and his firm has not provided banking services for the company.
At a Glance
Trico Marine Services
(TMAR:Nasdaq)
Current Price $8.18
52-week Range $15.19-$4.81
Price-to-Earnings Ratio* NE*
Market Cap $292.6 million
Avg. Daily Volume 160,181
Inst. Ownership 66%
Dividend Yield Nil
Beta 1.51
Company Web site www.tricomarine.com
*Based on 2002 Estimates. NE=No Earnings. Source: Market Guide, First Call, company reports
Although a bottom in pricing doesn't necessarily mean a rebound, the energy vessel business appears to be better positioned at the bottom of this cycle than in previous periods of weakness. For example, Trico's average current supply boat dayrate -- the cost to use a vessel for a day -- is now $6,050, compared with only $3,000 in the second quarter of 1999, the last cycle bottom. The ability to hold pricing steady has resulted from better supply and demand balance and the decision not to put boats in service at uneconomical prices. That could mean a quicker recovery.
In addition, Trico's fleet in both the North Sea and West Africa is showing signs of life. North Sea activity is picking up from the traditional winter lull, and pricing has moved 5% to 10% higher since the beginning of the year. In South Africa, Trico is adding a fourth boat to the region and sees the potential for up to 10 boats in the next two years. Dayrates of the West Africa coasts are running about $10,000, more favorable than Gulf rates.
Looking for Better Signs
Even as Trico suggests the bottom may be near, the stock may not react immediately. In fact, the energy vessel business is a late-cycle performer, making it a bit early to look for an impending pop in Trico stock. "Dayrate improvements for supply boats have traditionally lagged improvements in dayrates for offshore drilling rigs as supply/demand fundamentals have generally been less favorable for boats," says Wicklund.
Yet, if drilling for natural gas accelerates in the Gulf of Mexico -- and it very well could if production depletion continues -- Trico would benefit. "Over half of Trico's total fleet is currently located in the Gulf, providing significant operational leverage to an improvement in Gulf of Mexico activity," Wicklund says.
Until then, Trico stock may tread water. But, with the stock trading near its book value of $8 a share, there isn't a lot of downside risk. Wicklund notes that Trico stock has traditionally traded at about 1.1 times book, implying a price of about $9. However, at the peak of the cycle, the stock has traded at about two times book, suggesting a potential of $16. |
