We maintain our outperform rating on Great Eastern Shipping (Gesco) with a price target of R435 (0.8x NAV, 12.6x FY15e / 9.1x FY16e P/E). We have raised the FY16 estimates, mainly to account for a higher number of operating days for Gesco?s fourth rig.
The rig was earlier expected to be deployed in late FY16. We expect the offshore business to generate strong cash flows once capex for the fourth rig is done ? likely by FY16e. Net debt/Ebitda is likely to decline to 1.24x by FY16e versus 1.8x in FY14.
Gesco reported steady results, with core Ebitda of R347.6 crore in Q4FY14 versus an estimate of R3,573 million. We understand that there were a few one-off items amounting to R20 crore in the quarter, relating to ESOP and other expense provisioning, which impacted the Ebitda.
Net income came in at R63.8 crore versus our expectation of R83.1 crore. However, the quarterly result was impacted by R62.8 crore of foreign exchange losses, adjusted for which the results were better than our expectation.
NAV improved to R550 in FY14 from R433 in FY13. The company declared a final dividend of R5 a share vs our expectation of R4 a share.
The management was cautiously optimistic on the outlook for shipping, especially the crude and bulk carrier segments. It expects a neutral outlook for product tankers, with similar demand and supply growth. It also expects Gesco?s fourth rig to commence operations by end-FY15/ early FY16.
– Standard Chartered
