Shares in oil rig builder Lamprell (LSE: LAM) gained 14% when markets opened this morning, after the firm released a strong set of full-year results.
As a value investor, Lamprell has been on my radar recently, and I’ve been considering a purchase — so have I missed the boat, or is the firm’s recovery only just getting started?
Profits doubled
Lamprell’s revenue only rose by 1% last year, but post-tax profits excluding discontinued operations rose by 106%, from $45.1m to $92.3m. The firm also reported a $24.8m one-off profit from the sale of a non-core subsidiary business.
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As a result, Lamprell’s earnings per share rose by 194% to 37.4 cents in 2014. However, that includes the significant one-off gain from the business it sold. Stripping this out, my calculations indicate earnings from continuing operations of 27.2 cents per share, which is in-line with the latest consensus forecasts.
Lots of orders but no dividend
Lamprell reported an order backlog of $1.2bn at the end of 2014, 33% higher than the $0.9bn backlog reported at the same time last year. The firm says that its bid pipeline rose from $4.7bn at the end of 2013 to $5.2bn at the end of 2014.
There’s still no dividend, however: Lamprell last paid a dividend in 2011, but despite the firm’s improved finances, the board’s view is that the size of the investment programme being funded by last year’s rights issue means that a dividend is not yet appropriate.
What about the value?
Lamprell’s finances were strengthened hugely by the $120m rights issue it carried out last year. The firm ended 2014 with net cash of $272.6m and refinanced borrowing facilities, on more favourable terms.
Despite today’s gains, Lamprell shares also look cheap relative to earnings, and at 114p, are trading on a 2014 P/E of just 6.3.
However, Lamprell has warned that profit margins are likely to come under pressure in 2015, and the latest City forecasts suggest that earnings per share will fall to 18 cents in 2015, giving a forecast P/E of 9.5.
In my view, Lamprell offers good value and remains an attractive buy after today’s gains. The main risk is that no-one yet knows how severely the firm’s business will be impacted by the fall in oil prices — in part, this will depend on how quickly the price of oil recovers.
Ultimately, value investing almost always involves a measure of risk: companies are often out of favour or trading through difficult market conditions.
