Please remember this is only intended to explain what I am doing and why. And a reader should realise its to hit my investment goals. As such before investing DYOR. Lamprell is clearly not for everyone. If you follow me on twitter you may have seen the correspondance I have had with @blue2_u who clearly thinks LAM is a bargepole stock.
Lamprell is focused on the Oil and Gas market so the first hurdle you have to get over is whether you believe the O&G market will come back. Not $100 oil but certainly to $60 or better. I do and I think it will be before 2020. (Time matters in investing. If you can double your money in 20 years its still much less than a 5% per annum compound rate).
In its last set of interim results (30/06/16) Lamprell posted a $3.7m loss. Against a profit of $20.2m last year. Much of the change was due to a settlement they made after failing to deliver a jack up rig on time. This was the first delivery in a series and whilst terribly handled I do believe management have learnt the lessons and should deliver the rest to schedule.
As such I view this loss as a one off, that cost the CEO his job, but is not likely to repeat.
Given this Lamprell is in an area that will likely see some rerating as O&G improves and is capable going forward of being profitable. With the potential for greater profits as O&G prices increase.
Here is the kicker. As of the June accounts Lamprell had current borrowings of $20m against current assets of $651.6m of which Cash and bank were $207.5m. Total borrowings were only $69.2m. The bulk of current assets $412.1m are debtors.
Net Current Assets less Current Liabilities less Non current liabilities = $321.3
Potentially to add to this are Tangible non -current assets of $206m
So at an FX rate of 1.3 There is £247m of net current assets and £158m of non current assets against a market capitalisation of £238m. (It was £200m when I started this article LAM has been volatile over the last week).
This is a profitable company that is worth considerably less than its assets with limited borrowings and a decent chance of both improving its profits and a market rerating. Which is why I have bought a position. As I see the company developing or the oil market recovering I will be prepared to buy more.