By and large, Shawcor’s businesses demand continues to increase – globally for big projects and in North America for its local setup. Company reported solid second quarter results, with adjusted EBITDA of $90.4 million remained ahead of our expectations of $77 million and consensus of $82 million. Our estimates increased after success of these results, and we view the growing backlog and increasing bid book as encouraging of forecast solid year-over-year growth in 2015 and afar, fencing company’s valuation, as the stock trading at the top of its historical range.
Management upgraded its outlook which yet indicates trailing drops through second half in earnings, however calls for top-line growth through second half. Growth in its onshore North American business, including the newly acquired Desert NDT, is leading the revenue growth prospects. Though, year over year, revenue remained at lower margins, partly because of solid margin work in Asia Pacific regions in first half. Significantly, company’s backlog increased to $684 million (up 6.5% quarter on quarter) and distinguishing the second-quarter in a streak of sequential growth to backlog. Increment in Europe, Middle East, Asia and Americas led the growth. Particularly, company earlier confirmed gaining South Stream and Shah Deniz projects.
Company noted the bid book now increasing $1billion, up $200 million from first quarter. Bidding remained solid all through for company in most of its operating regions. Chevron – the IDD project is the crucial project in the bid book right now for Asia-Pacific, while bids are also noticeable for rest parts of the South Stream and Shah Deniz projects, with ShawCor well placed as per our understanding, with the preliminary phases for both South Stream and Shah Deniz projects.
Management has not seen any signs of delays to the South Stream project because of the continuing geo-political issues in Russia and in fact started getting pipe for this project. Worth mentioning, further work related to South Stream is incorporated in the $1 billion bid book, but is minor in contrast to the US$135 million by this time given for the project. Apart from South Stream project, company has no other business in Russia. We upgrade Shawcor’ shares rating to ‘Sector Perform’ with price target of $60 which is 2015 estimated EV/ EBITDA target multiple of 9 times based on the higher growth forecast for the subsea business internationally and strong basic demand in North America.