DBS Vickers expects Ezra’s subsea order wins to ramp up across FY13/14 to US$1b/US$1.5b ($1.2b/$1.8b), following strong year-to-date order wins of US$315m, as it bids for more than US$4b of subsea work globally. Its sizeable backlog of around US$1.1b ensures that its subsea fleet is well booked through FY13, driving earnings upside from positive operating leverage.
 

The research house also sees improving demand-supply dynamics in the OSV charter markets, supporting the firming of OSV day rates since 2011. “Along with lower expected vessel maintenance downtime in FY13/14 and management’s focus on boosting operational efficiency, we expect gross margin expansion at the Offshore Support division of 5.5ppt/3.1ppt across FY13/14.”

Recently, Ezra refinanced the bulk of its outstanding convertible bonds, easing concerns over its ability to refinance these. It will also refinance near term debt with the majority of the proceeds raised from the recent issue of notes and perpetual securities. More possible non-core asset disposals would further ease its balance sheet.

“After a series of disappointing quarterly earnings performance across FY12 on poor offshore support performance and higher admin expenses, we believe the group is on a firmer footing and is poised to deliver earnings recovery of 203%/72% in FY13/14F,” says DBS Vickers.

The research house has a target price of $1.30, as it bets on recovering earnings to drive upside. “Our TP for Ezra is pegged to 0.9x FY13 P/BV vs. its historical average of 1.9x. At 0.8x FY13 P/BV, we believe most of the negatives are priced in. We resume coverage on Ezra with a BUY call as its stabilising and recovering earnings across FY13/14 should lead to a narrowing discount to book value, driving upside from current price levels.”