Hvide growing despite slump with Wall Street Officials at marine services company call low oil prices a drag
(News Alert from South Florida Business Journal)
Shareholders at Hvide Marine, the publicly held Port Everglades oil field supply, transport and harbor towing company, are probably used to motion sickness. The fast-growing, $210 million international Hvide has been gobbling up former competitors, posting record revenue, and doubling its fleet size in recent months - but its stock has floundered, dropping nearly 50 percent since last October.
Hvide (OTC: HMAR) hit a 52-week high of $36.75 in September before a downturn that include a $10 price skid $10 within a few weeks. It's been flat ever since, trading recently as low as $18.25.
The cause, said Hvide CFO John H. Blankley, is attributable to the months-long downward trend in global oil prices. That, in turn, has sent the oil field services stocks down from peak levels in 1997.
As for Hvide's stock, said H. Blankley, "we can't do anything about it."
He said he and company founder Eric Hvide (pronounced "Vee-dah" ) continue to highlight the company's strengths in conference calls with stock analysts, at trade conferences and with individual shareholders.
"We believe so firmly in the underlying fundamentals of the oil field service sector we're in," he said. Supply boats shuttling materials to offshore oil and natural gas rigs accounts for 80 percent of Hvide's business. The company also ships petroleum and chemicals, and operates harbor and tug services. But servicing oil rigs is where the money is, said H. Blankley.
"The cash flow margins we get in that business are extremely favorable and can be as high as the 55 percent range," he said.
Supply-and-demand reality
But the sector is dependent on the amount of money oil companies spend on exploration and production worldwide. Investors see the price of oil going down, H. Blankley said, and they assume big oil companies will cut back on their exploration efforts. That thinking misses the reality of the current supply and demand picture in his business, Hvide's CFO said.
"Excess capacity in the world system for producing oil is lower now than ever," Blankley said. Even if big oil producers like Saudi Arabia turned on taps full blast, he said, the margin of excess oil, beyond what's being consumed, is minimal.
Current near-shore supplies of natural gas are being rapidly depleted, the CFO said, which is sparking a new wave of drilling in deeper water. Hvide's acquisition of heftier supply boats designed to handle the deep water business has the company nicely positioned in that niche - especially in the growing and lucrative Middle East and West Africa markets.
Another fact missed by Wall Street, H. Blankley said, is that significant oil and gas exploration commitments are being made decades ahead by major oil companies, and aren't effected by current oil prices.
According to a late February report on oil field services stocks by Value Line , technology advances have reduced drilling costs and made exploration for oil "extremely profitable." Last year, Texaco said it's upping its financial commitment to exploration 30 percent.
Still, in late January, Allen Brooks, an analyst with CIBC Oppenheimer in New York, downgraded Hvide's stock from a "strong buy" to "hold."
His focus: escalating overhead expense, greater interest expense and a higher tax rate. That prompted Brooks to reduce his earnings per share estimates for 1998 from $3.14 to $2.83.
Two significant acquisitions should be a positive impact on earnings in the next two years, Brooks said, but the stock price may be holding the company back. Hvide hasn't been able to fund the acquisitions with an equity offering, which has bumped up its debt to total capital ratio above an uncomfortable 65 percent, Brooks said. The company's fleet has expanded to 259 vessels overall, after acquiring another 45 vessels since January.
While Brooks said he doesn't think the weakness will be long-lived, it still sets up Hvide to possibly "under perform" in an already stagnated oil service sector.
Secondary businesses strong
In the interim, Hvide is making up for the stagnation in oil field services by strengthening itself through acquisitions in its secondary businesses, like harbor towing and tug business.
But even that has its critics.Tidewater (NYSE-TDW), a major competitor, told its shareholders last month that the new ships soon to come to the Gulf of Mexico will dilute the market.
But J. Marshall Adkins, an analyst with Raymond James & Associates in Houston, said there's enough attrition among older vessels, and enough new offshore rigs to quickly utilize the supply of new vessels coming on the seas. Equally as important, that means Hvide's "day-rate" fees shouldn't tank.
Adkins called Hvide "a great success story" because the company recognizes its chances to grow.
"They just search for opportunities wherever they happen to be - in tug boats, in oil fields, and they've made some terrific acquisitions in the Middle East ," Adkins said. "I like to call them opportunists," he said. |
