Caverton Offshore Support Group Plc

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. 

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