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ADES International sees significant growth potential as backlog and end markets improve

Snapshot

  • Middle East onshore and offshore drill rig contractor

  • Traditional skillset onshore and shallow water operations 

  • Two deepwater contracts picked up this year though Vantage JV 

Jack up rig

Quick facts: ADES International Holding PLC

Price: 12.8 USD

LSE:ADES
Market: LSE
Market Cap: $560.56 m
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Our focus remains on extracting synergies and properly integrating the recently acquired rigs, tendering activity and maintaining excellent customer service and asset utilization

Mohamed Farouk, chief executive

 

What it does

ADES Group currently operates a fleet of 13 jack-up offshore drilling rigs, 34 onshore drilling rigs, a jack-up barge, and a mobile offshore production unit (MOPU), which includes a floating storage and offloading unit.

The Weatherford acquisition doubled the operational rig fleet and added 2,300 staff in the Middle East.

Some 60% of revenues come from offshore drilling and 40% onshore.

ADES also has a joint venture with deepwater specialist Vantage in the Med that has just picked up a second contract this year

 

How is it doing

Half-yearly revenues rose by 176% to US$219.9mln, driven by a mix of organic and acquisition led-growth.

Earnings (EBITDA) improved 138% to US$90.1mln, with margins boosted by increasing work levels in Saudi Arabia and Kuwait.

 

What the boss says: CEO Mohamed Farouk

"The first half of 2019 saw group revenue grow almost threefold and become increasingly diversified across key regional markets with a good balance of off- and on-shore activities.

“ADES stands today with an asset base of over 50 rigs, the majority of which were acquired with a contracted backlog and short payback periods, and we are enjoying today a substantial and long-dated backlog of US$1.5bn with an average maturity of 4.2 years."

 

What the broker says: Numis 

"Conservatively assuming a flat day rate environment, we forecast 42-44% ongoing EBITDA margins and 30%+ EPS growth in 2020e.

"ADES is currently trading on an undemanding 2019/20e PE of 6.8 times.

"Our price target of $24.3/sh is based on our base case DCF work (using a WACC of 10%), implying a potential c.80% upside and undemanding target 2020e PE and EV/EBITDA of 9.6x and 6.9x respectively."

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