Trico Marine Services: Knowing the drill
Whoever said water and oil don’t mix obviously wasn’t speaking in financial terms. The pairing quite often results in petrol bliss, as evidenced by Trico Marine Services Inc. (Nasdaq:TRMA), a global company with operations in the North Sea, Gulf of Mexico, West Africa, Mexico and Brazil.
Founded in 1993, Houston, Texas-based Trico provides a broad range of marine support services to the oil and gas industry, including the transportation of drilling materials, supplies and crews to drilling rigs, and towing drilling rigs from one location to another. Trico also provides support for the construction, installation and maintenance of offshore drilling facilities.
The company operates through domestic and international subsidiaries: domestically, Trico Marine Assets, Inc. and Trico Marine Operators focus on the company’s operations in the Gulf of Mexico and other international regions (excluding the North Sea). Internationally, Trico Shipping AS owns the company’s vessels that are based in the North Sea. The company also has an equity interest in a Hong Kong limited liability company that develops and provides international marine support services for the oil and gas industry in China, other countries within Southeast Asia, and Australia.
Trico generates its revenue by chartering its marine support vessels on a day-rate basis. The company had 64 vessels at the end of 2007, 39 of which are supply vessels that are able to transport deck cargo, liquid and dry bulk drilling products and diesel fuel. The company is looking to add 11 more vessels to its fleet before the close of its first quarter in 2009.
Trico’s stock price has been somewhat volatile in recent quarters, although it has made for a tremendous growth story over the past three years. On Monday, the $580 million market-cap company’s common stock closed about 80% higher than it did right around this time in 2005. Trico’s recently reported fourth-quarter results indicate that continued expansion is likely in ensuing quarters.
For the year ended Dec. 31, 2007 Trico reported net income of $62.9 million, or $4.16 per diluted share, compared with $58.7 million, or $3.86 per share, for the full year 2006. Total revenue came in at $256 million, an increase from last year’s $248.7 million. The company benefited from a tax rule change thatwhich boosted earnings. For 2008, analysts are looking for EPS of $3.48 on $258.9 million in revenue.
One significant transaction that Trico made during 2007 was the acquisition of a Norwegian company, Active Subsea ASA, in late November. Prior to the deal, Trico had already begun to establish itself as a significant player in the market for subsea support services. This acquisition will further bolster a segment that the company sees as having the potential to provide higher margins than the contracts for its traditional towing and supply market. The $247 million all cash transaction will more than double the number of vessels in Trico’s fleet that have the capability of providing subsea support services.
Judson Bailey, an analyst for Jefferies & Company, Inc. (NYSE:JEF), is optimistic that Trico is headed in the right direction. In a November research note he wrote, “With the continued diversification away from the Gulf of Mexico and improving fleet quality of newbuilds, we believe that Trico shares have significant upside over the next 12 months as the market begins to discount the company’s new growth profile and change in fleet composition by 2009.”
Bailey has a “buy” rating on Trico, with a price target of $46, representing an 18% premium to the stock’s closing price on Monday of $38.97. Shares have ranged between $29.04 and $43.41 over the last 52 weeks.
An investment in Trico does not come without risk. Among the key risks that Bailey sees for the company are the possibilities for weakness in the Gulf of Mexico offshore supply vessel market, a significant decline in oil and gas prices, and/or a decline in drilling and construction activity in the North Sea.
Although these risks should not be taken lightly, the big picture for Trico remains favorable. It has done a sound job of diversifying its portfolio of business on a global basis and continues to position itself for future expansion, proving that oil and water do mix, after all.
Founded in 1993, Houston, Texas-based Trico provides a broad range of marine support services to the oil and gas industry, including the transportation of drilling materials, supplies and crews to drilling rigs, and towing drilling rigs from one location to another. Trico also provides support for the construction, installation and maintenance of offshore drilling facilities.
The company operates through domestic and international subsidiaries: domestically, Trico Marine Assets, Inc. and Trico Marine Operators focus on the company’s operations in the Gulf of Mexico and other international regions (excluding the North Sea). Internationally, Trico Shipping AS owns the company’s vessels that are based in the North Sea. The company also has an equity interest in a Hong Kong limited liability company that develops and provides international marine support services for the oil and gas industry in China, other countries within Southeast Asia, and Australia.
Trico generates its revenue by chartering its marine support vessels on a day-rate basis. The company had 64 vessels at the end of 2007, 39 of which are supply vessels that are able to transport deck cargo, liquid and dry bulk drilling products and diesel fuel. The company is looking to add 11 more vessels to its fleet before the close of its first quarter in 2009.
Trico’s stock price has been somewhat volatile in recent quarters, although it has made for a tremendous growth story over the past three years. On Monday, the $580 million market-cap company’s common stock closed about 80% higher than it did right around this time in 2005. Trico’s recently reported fourth-quarter results indicate that continued expansion is likely in ensuing quarters.
For the year ended Dec. 31, 2007 Trico reported net income of $62.9 million, or $4.16 per diluted share, compared with $58.7 million, or $3.86 per share, for the full year 2006. Total revenue came in at $256 million, an increase from last year’s $248.7 million. The company benefited from a tax rule change thatwhich boosted earnings. For 2008, analysts are looking for EPS of $3.48 on $258.9 million in revenue.
One significant transaction that Trico made during 2007 was the acquisition of a Norwegian company, Active Subsea ASA, in late November. Prior to the deal, Trico had already begun to establish itself as a significant player in the market for subsea support services. This acquisition will further bolster a segment that the company sees as having the potential to provide higher margins than the contracts for its traditional towing and supply market. The $247 million all cash transaction will more than double the number of vessels in Trico’s fleet that have the capability of providing subsea support services.
Judson Bailey, an analyst for Jefferies & Company, Inc. (NYSE:JEF), is optimistic that Trico is headed in the right direction. In a November research note he wrote, “With the continued diversification away from the Gulf of Mexico and improving fleet quality of newbuilds, we believe that Trico shares have significant upside over the next 12 months as the market begins to discount the company’s new growth profile and change in fleet composition by 2009.”
Bailey has a “buy” rating on Trico, with a price target of $46, representing an 18% premium to the stock’s closing price on Monday of $38.97. Shares have ranged between $29.04 and $43.41 over the last 52 weeks.
An investment in Trico does not come without risk. Among the key risks that Bailey sees for the company are the possibilities for weakness in the Gulf of Mexico offshore supply vessel market, a significant decline in oil and gas prices, and/or a decline in drilling and construction activity in the North Sea.
Although these risks should not be taken lightly, the big picture for Trico remains favorable. It has done a sound job of diversifying its portfolio of business on a global basis and continues to position itself for future expansion, proving that oil and water do mix, after all.
About the Author
Billy Fisher is a certified public accountant and and freelance investment writer whose work has appeared in Investor's Business Daily and The Motley Fool.
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