Ezra - Attractive deal not requiring incremental capex

Ezra has announced a profit sharing agreement to operate four new anchor handling, towing & supply (AHTS) vessels without incurring any major capital outlay. Under the vessel operating agreement, Ezra will manage these vessels for an offshore specialist fund in return for a half-share of the profit earned, after deducting direct operating expenses from the charter revenue. The vessels are still under construction, with the first AHTS slated for delivery in 1Q 2010. The AHTS vessels are basic workhorses of the offshore oil & gas support services industry that are deployed throughout the entire oil field life cycle and will complement the group's existing fleet of 25 AHTS and 3 crew boats within the Offshore Support Services division (original core business of the group).

We view this deal positively as it does not involve additional capex, yet the group will still be able to recognise half the profits. We think the assets were ordered in the past on specualtion by the specialist fund; but as they do not have the expertise in running these vessels, they now require the services of players like Ezra. On a steady state, assuming all four vessels are operating for a year, we estimate earnings contribution to Ezra per annum could range from US$2-3mn. While the amount is not large compared to overall group earnings, this deal could be a prelude to further of such arrangements, which appears attractive considering the minimal capital outlay.

We maintain our Buy on Ezra for its attractive valuations, strong execution track record, and its move into the high growth subsea market.

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