The share prices of companies selling goods and services to the US energy industry are about the only ones left partying on a wounded Wall Street. The Philadelphia Oil Services index has jumped 150 per cent since the price of oil began to rise and individ
So, with the North West Shelf about to embark on a multi-billion dollar spending boom underwritten by its brightest ever prospects, it should be the same story here. Right? Well, no. The WA companies knocked over when expenditure in the resource sector dwindled to nothing, have failed to get up.
David Franklyn, gun analyst at Hartley Poynton, thinks that presents a buying opportunity. He has researched the companies most likely to benefit from the continued high level of oil prices, and the go-ahead for the fourth LNG train in the NWS, and hung “out perform” labels on a number of them.
Clough looks the pick of the bunch. It is a member of the international consortium headed by Kellogg, which is working on the expected $4billion NWS expansion, including the Woodside LNG train and the pipeline and port development. Clough is poised for a strong cyclical upswing, with an order book swollen 60 per cent in the year ended June to a record $700 million. In recent weeks, it has won a $68 million contract to supply oil and gas platforms in the Gulf of Thailand, a $60 million extension of major engineering work in the Bay of Bengal and a $38 million contract for Shell Brunei.
Clough shares have been a chronic under performer, along with most of the engineering sector, since they were listed at 70 cents three years ago. They are trading at 56 cents. Part of the problem is a lack of liquidity. With the Clough family holding a dominant position on the share register, the average monthly turnover is a paltry 1.7 million shares.
However, that means small investors can get set where institutions fear to tread.
The stock is selling at just 7.5 times Hartley Poynton's forecast net earnings of $26.5 million for the current year. Thick profits of gravy will not start to flow for another year or two.
But investors get a yield of more than eight per cent, to satisfy their appetite in the meantime.
Mermaid Marine shares have bobbed up 10¢ to 54¢ since we spotlighted them in this column in early September. The action followed the arrival of new CEO Mark Bradley and an injection of cash. Clough has bought a 16.8 per cent stake in the company for $3 million and Bradley chipped in $2 million for just over 10 per cent.
Scientific Services was flattened when its business of conducting assaying work for gold and base metal miners in Australia and overseas was decimated. But management did something about it by pulling off two shrewd little acquisitions. One was a company called Gearhart, which provides technical services and special products to the oil and gas industry world wide.
The other, Expertest, carries out well testing, software and maintenance services, and counts Santos as its biggest client. Together, the acquisitions provide strong cash flow and will account for half of gross revenue.
That should help Scientific Services put an extra tot on the dividend lifting the yield to 10 per cent fully franked at the current 33¢ price.
Nautronix, which has an astonishing global reach for a company based in Fremantle, specialises in sophisticated surveying and navigational technology, that has won quite a following. It has strong prospects of selling new acoustics technology applicable to deep water oil and gas exploration and production.
For those who believe purveying tea and damper to prospectors was always the safest way to get rich, there is the Fleetwood Corporation, which operates three caravan sites at Karratha, and hopes to build a transient workforce village.
Not all of these recommendations will enjoy a stellar run any time soon. But it might be tempting to buy a small number of shares in each company, building a portfolio to ride on the coat-tails of WA’s hugely exciting energy future.