Medserv’s earnings for second half of the reporting year are lower than forecast due to delays in projects both in Integrated Logistics Support Services (ILSS) and Oil Country Tubular Goods (OCTG).
However, an update issued to the market today highlights that the group’s business pipeline remains robust with a strong outlook for 2018.
Further to the Company announcement, Edison Investment Research also issued an update where they state that although the project delays will see H217 miss expectations, contracted projects underpin their FY18 estimates and for this reason this remains unchanged. The DCF-based fair value provided by Edison currently stands at €1.64 per share.
The Group reports that the second ILSS base recently opened in Cyprus will become fully active in the coming month. Four to five wells are expected to be drilled in the waters offshore Cyprus in the next twelve months. Medserv Cyprus will support the upcoming exploratory drilling campaign planned by ENI Cyprus from both its shore bases in Limassol and Larnaca.
The Group’s Cypriot subsidiary also recently participated in a tender for the provision of ILSS to a second International Oil Company (IOC) which is planning to drill next year.
The Group said it was at an advanced stage to conclude a strategic long-term contract for the provision of shore base services in a new geographical area.
The Group celebrated a milestone event as the first delivery of pipes from Nippon Steel & Sumitomo Metal Corporation was successfully discharged at the new METS base in the port of Duqm, Oman, earlier this month. This was the first consignment in support of this contract, the largest ever won by the Medserv Group, awarded in the beginning of this year for an initial period of five years with a five-year extension option. The base in Duqm is the Group’s second base in Oman in addition to their base in the Sohar Freezone.
The Group reports that its Malta shore base remains a major contributor to the ILSS segment of the Group. This base is heavily active, and its business pipeline remains strong supporting International Oil Companies and the majority of subcontractors operating offshore Libya.
The Group said it was at an advanced stage to conclude a strategic long-term contract for the provision of shore base services in a new geographical area. Negotiations are still continuing since the scope of services has increased. Contract execution is expected to commence in the first quarter of 2018.
The Group is also awaiting the results of a tender in Trinidad, after failing to secure one of the two tenders submitted.
Medserv Italy remains active pursuing an ILSS project in the region which is expected to be executed next year. Medserv Portugal, whilst currently a small operation, remains profitable pending further developments on drilling offshore Portugal.
The OCTG segment is foreseen to be the largest growth driver in the Group in the coming years. The ‘Mill to Well’ model is being increasingly adopted between pipe manufactures and their clients. This results in growth of the Group’s OCTG business as it continues to successfully deliver Supply Chain Management (SCM) to the leading pipe manufacturers.
This segment is also well positioned to secure two new premium threading licenses. The Group is currently awaiting adjudication for the provision of machine shop services to an IOC operating in East Africa, as well as evaluating a new market for setting up a machine shop providing premium threading services.
The Group reported that projected growth for the period 2018 to 2020 remains strong for both business segments based on drilling projects and workover programs already contracted and expected to come to fruition in the coming three years, buttressed by an additional two new geographic markets by year 2018.