In today’s daily we have covered stock research on Titan Energy (HOLD). 













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The S&P 500 was up by 1.13points or 0.06 %on Thursday to 1861.33 points. The S&P 500 and Nasdaq moved in and out of positive territory in afternoon trading Thursday after starting the day with losses, as economic reports eased fears about the potential impact of a weakening global economy on the United States. Energy shares provided the biggest boost to the S&P 500, with the S&P 500 energy index up 1.2 percent.

Netflix Inc. slumped 20 percent after reporting third-quarter subscriber growth that missed the company’s forecast. EBay, which will spin off the PayPal payments business, fell 5 percent after giving a sales projection for the fourth quarter that missed estimates. Industrial metals remained under pressure from persistent worries about the outlook for the world economy. Copper fell 1.4% to a six month low of $6,552 a tonne, although Brent Oil showed signs of stabilizing after its recent run of steep losses.



Netflix Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by9.3 points or 0.18%on Thursday and closed at 5254.9 points. Senex Energy, Drillsearch Energy, and AWE Ltd all performed well on Thursday as investors saw a good entry point after the recent sell off, especially given the view that oil prices are likely to rebound in 2015. Resources giant BHP Billiton dropped 1.4 per cent to $33.33, main rival Rio Tinto fell 1.8 per cent to $59.89, and iron ore miner Fortescue Metals Group dipped 6 per cent to $3.42.

Energy was the best-performing ­sector, up 1.4 per cent, despite crude oil prices sinking even deeper into their four-year low. Brent crude oil was 1 per cent lower at $US82.91 a barrel. The Australian dollar is trading at US87.57¢, compared with US87.92¢ at Thursday’s local close.Iron ore is trading down 2.1 per cent at $US80.50 a tonne. The following stocks will trade ex-dividend today: Clifroy, Mt Evelyn and Districts, New Hope Corp, Valley Community Financial.

 

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




 
 
Stock of the Day - Titan Energy Services (HOLD)

Titan Energy Services (TTN) with its declining stock price provokes us to stay close due to certain positives and certain negatives.


Revenue (Source – Company Reports)

As per the FY14 results, growth in almost all businesses assisted TTN to witness increased sales. Along with increase in NPAT and EBIT, the Company reported to have robust cashflow from operations, up 82% on FY13 to $17.0m. There was seen a reduction in EBIT margin. Other observations included change in Nektar sales mix, reduced room rates and occupied rooms in RCH, and investment in Hofco growth. The shareholder returns improved with earnings per share risen by 13% and dividend payout ratio of 31% as opposed to 25% of FY13.


Results Summary (Source – Company Reports)

The year ended with Titan having $8.7 million of net debt and gearing of 12%. The funding rose with additional capex facilities of $13.0m. The capital expenditure was $14.2m as opposed to $9.7m of FY13 in view of Atlas Rig 3 acquisition.

The business-wise key highlights include record revenue and EBIT results for Atlas Drilling, risen by 18% and 37%, respectively. For Hofco Oilfield Services, TTN noticed sales growth throughout FY14. For the RCH segment, room capacity expanded up to 1,138 rooms at year-end, which rose by 69%. Nektar Remote Hospitality also witnessed 105% year-on-year revenue growth.

The Company could gain from its new water and waste business (BASE Transport & Logistics) which commenced in December 2013. TTN believes that continuing demand for water delivery and waste disposal from permanent and temporary camps in and around the Surat Basin will prove fruitful for the Company with regards to said business. Nektar also won two new permanent camp management and catering contracts. The 2H14 yielded immediate results from Hofco’s investment in drill pipe products.


Group Pillars (Source – Company Reports)

Another big achievement was to do with the successful deployment of Atlas Rig 4 to a tier one contractor and the opportunity to purchase Rig 3. Rig 4 will aid in offering cost-effective solutions to clients for the initial drilling of wells.

The increase in capacity in RCH segment, will allow it to benefit from ongoing activity over the next year. TTN confirmed that trading results were impacted by delay in contract start dates. With all settlements done, most of these contracts appear to be on track within 1H15.

A bird’s eye view on Nektar indicates healthy performance during FY14. However, due to focus on higher volume permanent camp contracts, the margins were lower than the previous year. 


Segment Revenue (Source – Company Reports)

For FY15, the Company aims to capitalize on additional growth in QLD CSG market with completion of construction. Further, TTN will principally target EBIT growth of at least 14% on the record FY14 result. Diversification; geographical landscaping with investment into NT, WA and SA; and organic growth will be looked upon as means for success. The core markets in the Queensland Coal Seam Gas (CSG) sector appear to facilitate TTN to make the most of the ongoing demand for its services.


Queensland CSG LNG Drilling (Source – Company Reports)

As part of Company’s recent updates, Atlas won a contract for an initial three well unconventional gas drilling program with a new client in the Arckaringa Basin. The drilling, which will start in October 2014, is expected to be through by early 2015. Further, contract for Rig 2 which was engaged for a project for a major CSG producer, has been extended for three months from October 2014. However, we do note some level of uncertainty with regards to Atlas business’ rig contracts during the second half of next financial year, as the Company indicated the need to improve Atlas’ contracted position.

Another big jolt is the very recent announcement by the Company about terminations of two RCH camp contracts which may impact the short term results. Primarily, one accommodation contract for 183 rooms concluded its term. There was an expectation that the contract would be taken up by another client which did not transpire. Another accommodation contract for 212 rooms (plus catering, water and waste) was terminated early. This led to an estimated $8m loss of revenue impacting the EBIT guidance. The Company also announced for delays around two potential contracts.


TTN Daily Chart (Source - Thomson Reuters)

Then, there are some holding costs of retaining drilling rig crews for the Arckaringa Basin contract for Atlas Drilling. Although Hofco is trading ahead of last year, TTN is little under pressure to make efforts for a consolidation plan for 2H15 in view of setbacks in RHC and Atlas. In this direction, the Company aims to augmenting sales in South Australia, particularly, targeting the Cooper Basin; building accomodation services pipeline; implementing a cost-effective operating structure; and considering organic growth and acquisition opportunities. Of course, the Company needs to be ready to deal with factors such as any weather-related issues which may impact drilling operations, any decline in demand for camps, regulatory risks, and failure of winning contracts for optimum rig utilization. 

The solid-on-paper but other-wise questionable foundation set by FY14 makes us think before taking next step. Contributions from BASE water and waste business; expected improvements in margins for RCH segment through cost-effective strategies; strong sales for Hofco under broad management team; and continual progress in Nektar, may or may not steer robust growth. Accordingly, we put a HOLD for this stock at the current price of $0.41.
 


 
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