Marine engineering services company MMA Offshore Ltd (ASX: MRM) has finally found a way to float shareholders' boats with the stock surging this morning to become the best performer on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Shares in MMA jumped 9.9% to a two-week high of 61 cents after it announced that it has won a $100 million contract with energy giant Chevron.
MMA will provide a wide range of shore-based services from its Dampier supply base over two years that will include operations planning and management for vessel mooring, load and discharge, freight management and dedicated laydown and staging areas.
The contract amount is significant given that analysts are expecting the company to post revenue of $568 million for the current financial year.
What's more, MMA has high fixed costs that largely stems from running the Dampier base, so a contract win like this will have a big impact on margins.
But it's the psychological impact of the Chevron deal that will be more significant given the sharp de-rating of the stock due to the lack of confidence about MMA's outlook.
You only have to look at the stock's price-earnings (P/E) multiple to see how little confidence the market has as the stock trades at a heavy discount of around 5x P/E for 2015-16 but it is still unable to tempt bargain hunters.
This issue isn't only restricted to MMA. The leading listed engineering services company to the energy sector, Worleyparsons Limited (ASX: WOR) is also under a lot of pressure.
There're fears that MMA's earnings will remain in decline for many years to come but if investors believe they can see light at the end of the tunnel, the stock will have a lot more room to climb given that it's shed more than 70% of its value in the past year.
The Dampier supply base is a valuable strategic asset for MMA as it gives the company a strategic edge over competitors.
The base and the big discount the stock is trading at makes MMA look enticing, although MMA is only for those with a tolerance for risk.
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