Gulf Island (GIFI) - A Value Investors Dream Stock
This is a summary of previous posts with some additions. It is posted for the benefit of visitors who wish a quick overview of the Company.
INTRODUCTION: Virtually unknown outside the Oil & Gas Industry, Gulf Island Fabrication, Inc. is a leading fabricator of offshore drilling and production platforms and other specialized structures used in the development and production of offshore oil and gas reserves. Structures and equipment fabricated by the Company include jackets and deck sections of fixed production platforms, hull and deck sections of floating production platforms (such as tension leg platforms), piles, wellhead protectors, subsea templates and various production, compressor and utility modules. The Company believes it is one of only three domestic companies capable of fabricating fixed offshore production platforms, including jackets, for installation in water depths greater than 300 feet. The Company's focus on controlling costs and providing high quality, reliable products and services has enabled it to be profitable for each year since 1988. Demand for the Company's products and services is primarily a function of the level of offshore oil and gas activity in the Gulf of Mexico and to a lesser extent, offshore areas in West Africa and Latin America. While revenues and earnings are expected to be soft during the first part of '99 relative to last years record setting pace, activity is expected to pick up this year and next.
The Company's facilities are located on 597 acres, of which 250 acres are currently developed for fabrication activities with 347 acres available for expansion. These facilities allow the Company to build jackets for fixed production platforms for use in water depths up to 800 feet and deck sections for fixed or floating production platforms for use in unlimited water depths. In addition, the Company is able to build certain hull sections of tension leg platforms, typically for use in water depths greater than 1000 feet.
Last year, in order to broaden its range of products and services, Gulf Island acquired two companies.
Dolphin Services - Specializing in: oOffshore ConstructionoFabricationoInshore ConstructionoSteel SalesoSandblasting & Coating and Southport, Inc. - Specializing in the fabrication of living quarters for offshore platforms. In addition to the acquisitions the company purchased for cash 6 manitowac cranes which had been previously leased. It also purchased real property in anticipation of future expansion.
Reasons to Own Gulf Island Fabrication, Inc. - GIFI
1. The price of crude bottomed in December 1998 and is currently trending up. It is ironic that Market Cap of Companies like GIFI and FGI have fallen to such low levels since approximately ¾ of GOM work is gas related. Mr. Chauvin/CEO of GIFI stated that the Natural Gas people are still spending money. With the price of Crude now trending up, it appears the OSX will also turn the corner from strong support @48. osxstocks.com
2. Current price of $6.50 is only $.40 more than my Book Value estimate of $6.10. YAHOO shows Book Value as $5.64, but that is for the period ending 9/30/98 and does not take into account over $4m added to stock holders Equity in the 4th quarter and obviously doesn't reflect increased equity for the first 2 months of 1999. Current Market Cap on 11.6M shares @ 6 ½ is $75.6m which is only $5.9m more than Stockholders equity of approx. $69.7m a/o 12/31/98. Company has grown from $79m in revenues in 1996 to $192.37m ending in 1998, an amazing 143.5%in only two years.
3. Earning Per Share (EPS) has grown from $.55 in 1996 to $1.61 in 1998, an amazing 192.73% growth during the worst depression in crude oil history. While analysts estimate the Company will earn $1.05 this year, it is worth noting that these same analysts have low balled the quarterly estimates by an average of 28.9% for the past five quarters. biz.yahoo.com
4. Mendock Project: A new idea for future deep water Oil and Gas development . The concept has generated world-wide interest and is becoming more accepted for its potential in deep water ventures. Model testing has been real favorable and project is entering Phase II engineering studies to determine more definitive engineering feasibility of constructibility. Gulf Island is working with three other engineering firms on this project. Patent is pending.
5. Pertronius Module: The word on the street is Gulf Island has been given an unofficial nod to start rebuild of the Module dropped into the GOM in early December. If the rumors are true, TEXACO will make the official announcement, which is customary.
6. Compare 800 Day Chart of OSX with S&P500 osxstocks.com While the OSX demonstrates as classic bottom, the broad index is showing a classic top formation. The two will ultimately come into equilibrium. The chart proves it. Also compare GIFI with S&P500 (P/E and PEG). biz.yahoo.com
7. While the first quarter is a little slower than anticipated, Gulf Island received some unexpected work late in the 4th quarter, which is working its way into the production cycle with results likely to show up beginning in the second quarter.
8. Asia is showing signs of wide recovery: i.e. S. Korea economic pick up messages.yahoo.com@m2.yahoo.com and world stock market recovery quote.yahoo.com . S. America has shrugged off the deep recession forecasted just a few months ago. Economic vital signs are beginning to show a return to a more healthy climate.
9. There are growing signs of solidarity in OPEC and Non-OPEC exporting nations to achieve meaningful cuts in production to induce price recovery.
10. While domestic production is being decimated , 2% to 3% annual growth in U.S. demand remain almost certain.
11. Downside risk is limited by technical support @ 6 ½, and book value of $6.10 (my estimate), and a bargain basement P/E. Projected earnings growth (PEG) of 16.8% over the five year business cycle is merely frosting on the cake.
SUMMARY: Central Bankers have re-inflated the money supply of all the world's major economies, which has historically led to higher inflation. Hard assets, believe it or not, will start to come back into favor as people seek to protect their wealth against inflation. Oil and Natural gas have historically been chosen as a 'hedge' against rising inflation. More so even, than precious metals which also rise with anticipated levels of inflation. Countries around the world are in the initial stages of recovery as evidenced by trend reversals in their capital markets. quote.yahoo.com The Oil and Gas Industry the hardest hit sector, by any measurable standard, is already showing signs of recovery. Since hitting rock bottom in December 1998, crude oil prices are gradually climbing back; but, are still 40% to 50% below historic norms. The decimation in domestic crude production and large scale cut backs elsewhere i.e. the Caspian Sea. See "Oil slump, Caspian woes jolt Azerbaijan" Message 7945355 may well lead to temporary supply shortages in the not too distant future.
Gulf Island has weathered the historic crude depression in grand style. Stock holders equity has grown significantly while other companies have suffered. The company is a larger and much stronger company now than when it was selling at 39 ½. Gulf Island, a growing company, saturated with 'Value' and poised for potentially exponential growth in Stock price. Compared with the S&P500, it's a No Brainer. The index is priced at 4 times GIFIs P/E and the Index PEG is less than ½ that of the Company. IF you can find a better buy, BUY it!! Good luck to all.
SargeK
Note: I did receive a private message that I might expect "some favorable news" o/a Tuesday March 2....FWIW
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