Questor says HOLD
Oil rig maker Lamprell was in demand yesterday after it said it had secured waivers on banking covenants and had won a new contract in the North Sea.
The shares jumped 20pc as the market took the news as evidence the company was getting back on track after a truly shocking 2012, in which it issued five profit warnings, causing its shares to slump 61pc on the year.
But even after yesterday’s rally, the shares remain at less than a third of the level they enjoyed when Questor last felt confident to tip them as a “buy” in early May, on a string of major contract wins.
That confidence was shattered the same month, when Lamprell warned of a series of unexpected project delays and cost overruns, which severely damaged management credibility.
Questor was therefore relieved when new chairman John Kennedy, brought in in June, instigated a shake-up of management that saw the departure of Nigel McCue as chief executive.
Lamprell was last recommended as a “hold” after its fifth profit warning in November , when it issued what should, hopefully, be the worst of the bad news.
An external review revealed that losses for 2012 would be $105m (£64.4m), seven times greater than previously expected.
Since then, a new chief executive has been appointed in the shape of engineer James Moffat, who will take the helm on March 1 from former chief executive Peter Whitbread who was brought back as a stop-gap after Mr McCue’s exit.
Mr Moffat served until recently as the executive director responsible for the giant Chevron-led Gorgon liquefied natural gas (LNG) project in Australia, which last month saw a whopping $15bn budget blowout. While this could be seen as a cause for concern, most of the roots of Gorgon’s cost increase, such as exchange rate changes, have afflicted other similar projects in Australia. It is more likely an unfortunate coincidence than a bad omen for Lamprell.
Mr Moffat certainly has a wealth of experience in engineering and project delivery from his 35-year career in the industry, which should help to ensure the company is better-run than it had been. However, he is not well-known in the City; some say he appears a more typical candidate for a chief operating officer role than a chief executive, a position he has not previously held.
It is therefore sensible that Mr Whitbread is expected to remain on the board for some time, and that Lamprell appears in no rush to replace interim chief financial officer Frank Nelson.
All the same, it will be crucial that Mr Moffat gets off to a strong start.
Yesterday’s update shows Lamprell is making steady if not stunning progress in the meantime; the continued support of its lenders was important and reassuring, but not unexpected. The contract win is similarly encouraging but, at $40m, is relatively small, adding to an order book which stood at $1.4bn in November (Xetra: A0Z24E - news) . A few bigger contract wins from the bidding pipeline of more than $4bn will be necessary to show that its reputation is as strong as it was.
Lamprell also said it had kept to revised delivery schedules for two key projects. A detailed trading update is due near the end of this month, and it will need to continue to deliver.
Lamprell has designated 2013 a year of recovery, and for those with an appetite for risk the stock could be worth buying; if new management, contract wins and project delivery all come good, there is significant upside. But there is a long way to go, and the market is likely to be unforgiving of bumps along the way.
For that reason the rating remains hold.