New equity of up to USD 21m makes SeaBird much safer as liquidity risk is
eliminated, while upside potential in the stock is substantial due to good
market prospects. We keep our target price unchanged at NOK 0.30/sh. and
reiterate our Buy recommendation with increased confidence. The main
triggers going forward are potential major 2D contract awards, possibly
involving areas offshore U.S. East coast.
Private placement of shares
SeaBird announced a private placement of new shares on Thursday after the
market close. It was successfully placed, amounting to 937.5 mill. new shares
at a subscription price of NOK 0.16 (market-close price prior to the
announcement was NOK 0.222/sh.), raising NOK 150m (USD 18.5m) in gross
proceeds. A subsequent offering of up to 156.25 mill. shares will be carried
out, raising proceeds of up to NOK 25m (USD 3.1m) at the same price to its
shareholders as of close of trading May 24th who did not participate in the
private placement. Thus, assuming max. repair issue, the total number of
new shares to be issued will be 1.094 bn (an increase of 99%) and the total
gross proceeds will be NOK 175m (USD 21m). The proceeds are said to be
used to finance working capital and potential new investments in vessels and
equipment. We view the private placement as a logical step from SeaBird
bearing in mind the company’s tight liquidity situation and attractive price
level – the share price almost doubled during the last month.
Potential new contracts indicated
SeaBird also informed that is currently in discussions to supply one or more
vessels for potential major 2D contracts, which are anticipated to start in
H2 2018 and could potentially add approximately 15 vessel months to
Seabird's backlog. That would be significant for SeaBird – in case the two
currently used vessel are involved, that would secure them employment for
two and a half quarters.
Liquidity risk eliminated, TP unchanged, Buy reiterated
New equity of up to USD 21m makes SeaBird much safer as the liquidity risk
in the company will be eliminated for now, while upside potential in the stock
is substantial due to good market prospects and high operating leverage.
SeaBird can easily keep its EBITDA at a break-even, so it‘s reasonable to
believe that the company will not need another equity issue. Our DCF value
reduces from NOK 0.51/sh. to NOK 0.33/sh. due to inclusion of lower-valued
shares, but we are also slashing the discount to it in the target price from
40% to a more normal 10% as the risk has reduced. Hence, we keep our
target price unchanged at NOK 0.30/sh. and reiterate our Buy
recommendation with increased confidence. The main triggers going
forward are potential major 2D contract awards. It is also reasonable to
expect that SeaBird will get more analyst attention from the market due to
reduced risk profile, which would further support the stock.