In today’s daily we have covered stock research on Mermaid Marine Australia (BUY).









 
The S&P 500 was up by 5.37points or 0.26%on Wednesday to 2071.92 points.  U.S. stocks rose modestly on Wednesday asenergy-related shares rose for a third straight session and data pointed to improving conditions in the U.S. services sector, which makes up a majority of the economy. While the energy sector is on track for its third consecutive daily advance - and is up 2.8 percent over that period - it remains the only industry group to be negative for 2014.

Markets reacted mutedly to data showing the U.S. private sector created 208,000 jobs last month, fewer than expected. The numbers, however, suggested a slowing global economy was having a limited impact on domestic activity. Momentum is building for the ECB to launch a program of sovereign-bond buying to boost the bloc's struggling economy, with most signs pointing to March for a decision. The ECB meets on Thursday.



Dow Jones Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 40.5points or 0.77%on Wednesday and closed at 5321.8 points. Local shares continued to go higher despite Australian Bureau of Statistics data showing far weaker than expected economic growth in the September quarter. Gross domestic product grew by just 0.3 per cent in the three months, missing consensus forecasts for an annual rate of 3.1 per cent. Australia’s biggest oil producer, Woodside Petroleum, lifted 2.2 per cent to $35.64, and Oil Search added 0.3 per cent to $7.72, while Santos dropped 1.2 per cent to $9.08. The Australian dollar is trading at US84.00¢, compared with US84.01¢ at Wednesday’s local close. SPI futures are up 10 points.

Liquified Natural Gas (LNG) was the best-performing stock in the ASX 200, climbing 13.9 per cent to $2.86. Rio Tinto lifted 0.1 per cent to $57.98. Iron ore miner Fortescue Metals added 5.5 per cent to $2.71. Food and liquor giant Woolworths added 2.2 per cent to $30.90 as it announced the acquisition of Chinese alcoholic drinks distributor Summergate. BHP Billiton edged up 0.1 per cent to $30.44.  Iron ore is down 2 per cent at $US69.25 a tonne.

LNG Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Mermaid Marine Australia (NowMMA Offshore Limited)(BUY)

One of the recent announcements by Mermaid Marine Australia (MRM) indicated that the Australian Securities and Investments Commission has approved the Company’s application to change its name to “MMA Offshore Limited” with effect from 03 December 2014. The Company’s ASX code remains the same. This name represents a single brand for both Mermaid Marine and Jaya operations, and avoids brand confusion with another vessel operator in the South East Asian region.

Another confirmation entails that MRM’s employees at the Dampier Supply Base approved a new enterprise agreement that will deliver market competitive wages, long-term employment security and improved service flexibility. In the midst of strategic changes at many ends, MRM reported that 2014 was a transformational year for the Company. This was supported by the completion of acquisition of Jaya (a Singapore based offshore vessel operator and shipbuilder). With this, MRM becomes one of the largest offshore marine services companies in the Asia Pacific region with over 60 owned vessels and strategically located on-shore facilities in Australia and South East Asia.



Specifically, the Jaya acquisition enabled MRM to significantly expand its geographic reach with over 32 vessels operating throughout Asia, the Middle East and Africa. The exposure to high specification vessel classes including subsea support vessels has also increased. Land based infrastructure in South East Asia has been secured to provide opportunities to expand into marine logistics internationally over the medium term.


Strategic Rationale behind Jaya Acquisition (Source – Company Reports)

Further, the business performed well with some hiccups owing to construction activity relating to the Gorgon Project that resulted in lower earnings from the Dampier Supply Base, which equipoised the robust performance from the vessel business to an extent. A strong second half performance was witnessed and entailed a Net Profit after Tax of $53.9 million and earnings per share of 18.8 cents per share. MRM recorded NPAT for the year of $58.3 million, which decreased by 3.3% on the prior year and EPS of 25.1c, which decreased by 6.7%, excluding the effect of the Jaya acquisition. Jaya acquisition contributed to earnings in FY14 to a small degree in view of the settlement which occurred on 03 June 2014.


Strong 2H Performance in Vessel Business (Source – Company Reports)

In view of the transition of the Australian market from a construction to production focus over the medium term, the Company mentioned that opportunities for long term production support contracts will increase. The Company was awarded a major long term production support contract with INPEX during the year which is the single largest contract in the Company’s history worth $160 million and up to $500 million if all the options are exercised. This contract is for the provision of two production support Platform Supply Vessels or “PSVs” for a term of five years with two five year options to extend. The vessels are being constructed at the Vard shipyard in Vietnam with an expected delivery in late 2015 and early 2016 respectively.


Fleet Expansion (Source – Company Reports)

The Company is investing in its fleet during the year with a new PSV - the Mermaid Leeuwin delivered in December 2013. A further two vessels were delivered into the fleet, Jaya Majestic (a large 160 tonne Anchor Handling Tug Supply vessel) and Jaya Victory (a high specification PSV) in August 2014. The Victory’s sister vessel, the Jaya Valiant was also delivered in October. MRM also reported that three specialized subsea support vessels are currently under construction at Batam Shipyard with delivery scheduled for late 2015 to earlier 2016.

In September 2014, the Company also won a large contract for the operation and management of the accommodation vessel ‘Silja Europa’ that will house around 1,200 members of the Gorgon construction workforce. Then, the Subsea 7 Heavy Lift and Tie in Project is another platform that allows MRM to manage a total of 20 vessels to support the delivery and installation of the Gorgon Project’s subsea infrastructure. Subsea 7 contract completion is expected by 3Q FY15 but Europa is to continue into FY16.


Trading Update (Source – Company Reports)

However, there have been some lows with Maritime Union of Australia’s 5-day strike on the Supply Base in October, seeking better pay and conditions. Such hurdles may now be taken care by the enterprise agreement recently approved by the MRM’s employees at the Dampier Supply Base.

On the international scale, South East Asia, The Middle East, and East and West Africa appear to be key markets. Assets such as Dampier Slipway remain key strategic assets for the Company in Australia. 


Dampier Slipway (Source – Company Reports)

Also, the Broome Supply Base JV provides a positive outlook and is recognized as the benchmark operator.


Shipyard Strategy (Source – Company Reports)

Factors such as continuation of the services’ demand throughout FY15 and FY16 owing to increasing requirement of offshore construction services in the Browse Basin and offshore projects such as Chevron Wheatstone and Apache Julimar; and strong demand for vessels in South East Asia and other locations play in favor of MRM.


MRM Daily Chart (Source - Thomson Reuters)

Given the above scenario and MRM’s confirmation to meet market estimates in view of on-track FY15 initial performance despite the recent oil price decline, we put a BUY recommendation for this stock at the current price of  $1.335.



 
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