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SKE $1.64

SKE half yearly

  1. DSD

    15,757 Posts.

    After selling out of SKE on 29/12 at $1.45 I re-entered SKE on friday at 1.305 after parking a bid about 9 days ago. This is a full 16 cents higher than my earlier BP of $1.145 purchased on 17/12/14.... a difference of 12%. If i bailed from SKE just 30 days earlier, why re-enter at a significantly higher SP? Posting on HC helps me explain myself to myself and here's my reckoning.

    A lot has happened with SKE during the past 10 weeks. Mid-Nov and SP is slipping gently from 2.30's a week earlier to be at $2.25. Suddenly within a month it's at $1.10 after touching 1.04. Yet across a swag of brokers consensus value remains at 3.89. During this period the only release with any real SP significance is an earnings update from SKE on 8/12. It states 'no material change in its operations and outlook since AGM on 21/10'. 'WE see no reason for the recent fall in share price, and expect no near term impact from the recent fluctuation in oil prices'. Mkt reaction was to post record vols and SP to fall even faster reaching bottom just 9 after the update.

    Then another 2 weeks later SKE announces it has received a proposed 'merger' from PRG. SP had already started gaining and shot-up fast after merger was made official. Clearly someone had forced SP sharply lower prior to the 'surprise' offer from PRG. ASIC look at the chart, wash their hands, and wander off to lunch. Nothing to see here. SP peaks at 1.72 on 05/01 then crashes back after no follow up from PRG eventuates. Clearly the bid was opportunistic with zero chance of acceptance from SKE board.

    Following 3 weeks saw SP slipping back with a sudden sharp fall on 30/01 to 1.30. Vols are back to usual 2-300k level. That's the history and now all eyes will be on half yearly due in about 3 weeks. Meanwhile in mid-dec the appointment of new CEO was brought fwd. in FY14 SKE had EPS of 18.9c and paid total div of 17c a payout ratio of 89%. But 'underlying' EPS was 23.6c and substantial difference, amking div payout ratio far less at 72%. Since FY13 SKE has spent a considerable amount buying 2 companies incl an oufit that services the Aussie offshore oil industry. In early FY15 a couple of vessels were added. Clearly, Mr mkt feels the timing was awful. But is it that bad? Not if you beleive the statement on 8/12 which specifically raises this issue.

    So what to expect in 1hFY15 announcement? I reckon:
    A) String focus on continuation of cutting costs by SKE and on track to achieve target of 15m during FY15. Makes big diff to bottom line.
    B) Weak earnings from 'workforce services' division with little hope of upside.
    C) Average result from Thomas & Coffey but with a query over future rev and margins. Layoffs are likely in 2hFY.
    D) Saipem contract will be a success.... but after that?
    E) my guesstimate is eps for 1H of 10cents which is below pcp and well BELOW that implied at AGM. I don't expect much diff between underlying and reported figures.

    But focus will be on outlook for 2H and i feel it will be weak. Hard to guesstimate but how about 8c making total of 18cents? Nah... too optimistic so cut to 17 cents for full yr. Underlying div payout ratio will not be cut as board aware that SKE is seen as a dividend stk and mkt won't bear a big change in course without hammering SP. Debt is lowish so no threat there. Let's say 12.5c (7+5.5) = 73% ratio. Hence at $1.305 we have PE = 7.9. Divs = 9.58% net = 13.7% gross. Sounds a lot but holders require this is a climate of collapsing commodity prices. Puts squeeze on both rev and margins. Cost savings the BIG plus for SKE.

    If crude recovers above $55-60 that will provide a decent boost. feel that is quite conceivable. But imo IO prices heading lower. Anyone buying SKE at current level?? If anything i feel 1Hfy15 will be stronger than my forecast.

    PS. Amazing how posting on a public forum makes one reconsider stuff. When i placed my bid 9 days ago i estimated EPS of 11.5 + 9 = 20.5c and divs of 8 + 6.75 = 14.75c. At $1.305 equates to PE 6.4 & divs 11.3% net or 16.1% gross.

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