STX OSV @ $1.245

Buy @ $1.245

A new stock to my portfolio. Following Sam to buy….:D

They were part of the STX Group, Korea. Direct major shareholder was STX Europe, which is selling assets to reduce debts. Their 50.75% stake was acquired by Fincantieri @ $1.22, finalised on 23-Jan-13 and thus, currently doing a Mandatory Offer. The share price has tumbled down from $1.4x since the deal was announced in Dec-12, with a substantial shareholder (Oz) selling down their stake from 20% (Placement @ $1.33 in 8-Jul-11 with a lock up period till 12-Nov-12 (with attached conditions).

Story is very much like Neratel but, IMO, STX OSV is nowhere near as attractive as Neratel as Biz is highly cyclical – on down cycle now + Balance Sheet is not as strong – Low Net Cash.

From their Q3 (Sep) Financial Statements,

• Net Profit -24.7% (9M) ; -45.6% (Q3)
  • FY12 profit is likely to be more than -25% below FY11 as Q411 was a very strong Q
• Cash is almost same as Debts
• 1H12 Special Interim Dividend = 13ct   (Very likely to help their controlling shareholder who's financially troubled)
  • With just 13ct already paid, Yield >10%
• 1H11 = 5ct + 2H11 = 10ct => FY11 = 15ct ie. Yield of >10%
  • If they can match FY11 = 15ct, left 2ct for 2H12.
• 9M12 EPS = 14.18ct ; 9M11 = 18.06ct
  • If Q412 is profitable, there'll be some extra EPS that can be paid as Div
  • BUT, FY12 very likely to end with much lower EPS than FY11 = 29.3ct
  • In the worst case (very high probability), no Final Div
  • My Projection is 0-2ct (Likely) or 3-5ct (Optimistic) with EPS = 17-19ct & PE = 6.6 @ $1.245
• From the Cash Flow statement, I'm unable to form any conclusion on whether they can afford to pay more dividends. My 'kung-fu' is not good enough to understand it properly as I see the OCF (Operating Cash Flow) having large swings on a Q-on-Q comparison.

No time (too much CNY Spring Cleaning activities) to do a more detailed analysis (still have the Kingsmen one to do, haha…). Take a bet first using preliminary analysis. Q411 results were out on 14-Feb last year, should be out soon. They have also recently announced the IFA appointment, should take a couple of weeks at least to produce their recommendations.

PS. OSV means Offshore Support Vessel ie. their core biz is building vessels to support the Oil Exploration Industry, with main focus in the harsh sea condition of Northern Europe (that's likely why their main HQ is over there). They have shied away from Asia as they're unable to compete on cost. They have also started operations in Brazil, targetting the South America market.

Reference

STX Europe Unloads Norwegian Yard – 2-Jan-13

"In October, STX Group, which is the South Korean parent of STX Europe, said that it was planning to aggressively improve their financial structure through overseas asset sales by the first quarter of 2013. One such sale included STX OSV, which was sold to Italy’s Fincantieri and raised a reported $600 million."