Company Overview
Caverton
Helicopters Limited and Caverton Marine Limited were the predecessors of Caverton
Offshore Support Group Plc. Caverton Marine Limited, an indigenous shipping
company, commenced business in 1999 while Caverton Helicopters Limited, a
company involved in helicopter charter, sales and maintenance, began in 2002.
They are now the subsidiaries of CAVERTON.
Investment Thesis
There was a
gradual slack in revenue growth due to reduction in adhoc charter services segment
across both subsidiaries.
The cost reduction
effort by the management is commendable. But quality earnings growth and
stability can only be achieved by diversifying revenue base and penetrating
other West African countries. The Maintenance, Repair and Overhaul Facility that
is being constructed in Ikeja, Lagos State would reduce capital flight and
training costs for engineers and pilots. This is expected to impact earnings
positively in the future.
The company has a
sizeable exposure to foreign exchange risk; about half of the loans are procured
in US dollars. Interest payment may erode profitability against the backdrop of
dwindling business activities in the oil and gas sector.
The business is
capital-intensive and this bears on the ability of the company to generate free
cash flow to shareholders. Liquidity position is worsening and free cash flow
is lessening, nevertheless we believe that CAVERTON
can afford investors opportunity for growth of their portfolio going forward.
Valuation
EPS was more or
less flat at NGN0.3 while Book Value Per Share gained 2.2% year-on-year. It has a trailing P/E of 3 times. We estimate a share of CAVERTON to be worth between NGN1.7 and NGN3.1.
