Bhagwan Marine Ltd (ASX: BWN) recently released a trading update which indicated earnings would be below last year's result and also below consensus analyst estimates.
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Shares still looking cheap
That said, the analyst team at Shaw and Partners think the stock is a buy at current levels, with a bullish share price target on the company. We'll get to that later.
First let's have a look at what the company announced. Earlier this week Bhagwan Marine said it was facing a tougher trading situation.
The company said:
The conflict in the Middle East, together with organisational restructuring within the energy sector, has resulted in selected delays to the award and commencement of spot and short-term projects. These delays are considered timing-related rather than structural in nature, with underlying long-term demand remaining strong.
The company said it now expected EBITDA to be in the range of $38.5-$40.5 million, excluding contributions from the recently-acquired Riverside Marine and acquisition costs.
Including the Riverside business, the result is expected to be in the range of $44.5-$46.5 million.
This compares with full year earnings last year of $50.9 million and consensus expectations for this year of $56.3 million.
Bhagwan said it was doing what it could to limit the impact of negative effects from the Middle East war.
It said:
Pricing structures include mechanisms to mitigate variable operating costs, including fuel pass through provisions and pricing adjustments at contract renewal or extension. The Company maintains strong visibility over its fuel supply arrangements and has not experienced any fuel-related disruptions. Higher operating costs arising from the conflict and broader inflationary pressures are being closely managed and are expected to be substantially recovered over time.
Despite the cost issues, the company said, "supported by strong tendering activity and a healthy project pipeline, the outlook remains positive despite the short-term geopolitical and economic environment''.
Valuation undemanding
Shaw and Partners said in a note to its clients that the company had retained its buy rating as it was trading at a discount to its peers.
The Shaw team added:
We view the earnings soft-patch as timing-related rather than structural, reflecting delays to spot and short-term project awards amid geopolitical disruption, not a deterioration in demand or pricing.
They said they believed that Bhagwan had not lost any customers over the period, and, "core activity in ports, decommissioning and industrial sands is tracking at or ahead of expectations, reinforcing that underlying earnings power and utilisation remain intact''.
Shaw and Partners has lowered its price target for Bhagwan Marine from 90 cents to 60 cents, however this is still well above the current price of 32 cents.
Bhagwan Marine is valued at $127.1 million.
