Mermaid Marine Australia Limited soars more than 10%: Here’s why

Is there more to come from Mermaid Marine Australia Limited (ASX:MRM)?

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Marine logistics and supply base services company Mermaid Marine Australia Limited (ASX: MRM) has seen its share price soar more than 10% to $2.13 today.

In recent weeks, a number of fund managers have taken substantial shareholdings in the company that mainly provides marine services to the offshore oil and gas industry. The company is the largest of its type in Australia, and earlier this year acquired Singapore-listed Jaya Holdings for $625 million.

Jaya has a fleet of 27 vessels, two strategic ship yards in Singapore and Indonesia, and was in the process of building an additional six vessels. The fleet operates across South East Asia, the Middle East, and on both the East and West coasts of Africa. The acquisition has given Mermaid increased diversity by geography, and scale to cross-sell additional services to its clients.

Interestingly, Mermaid paid less than book value for Jaya, meaning no goodwill.

In April this year, Mermaid said the acquisition was expected to deliver mid-single digit EPS accretion, in other words, around 5% growth in earnings, on top of what Mermaid can bring to the table.

In the 2014 financial year, Mermaid reported a net profit of $53.9 million, including $2.6 million from Jaya from one month of operations. Based on consensus forecasts, Mermaid is trading on a prospective P/E ratio of just 9.5x, and is currently paying a fully franked dividend of close to 6%. The company is also trading at close to its net tangible asset value of $1.95 per share. That suggests the current share price looks cheap.

With offshore oil and gas drilling growing, Mermaid is perfectly positioned to take advantage of the trend. Newly discovered East African deepwater gas fields and discoveries offshore West Africa should also prove positive for Mermaid in the long term.

And that’s not to mention the substantial deep water activity in the Browse and Canning Basins, as well as supporting a number of the world’s largest oil and gas companies including Shell, Woodside Petroleum Limited (ASX: WPL), INPEX, Chevron, BHP Billiton Limited (ASX: BHP), Santos Limited (ASX: STO) and Conoco Phillips.

No wonder the fund managers are piling in and Foolish investors may want to add Mermaid to their watchlists.

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Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga

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