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Bristow Group Can Fly High

August 05, 2014 | About:
Faisal Humayun

Faisal Humayun

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Bristow Group (BRS), which provides helicopter services to the offshore energy industry, is an attractive stock to consider for long-term. This article discusses the key investment positives related to Bristow Group.

About Bristow Group

Bristow Group is a leading provider of helicopter services to the worldwide offshore energy industry based on the number of aircraft operated and one of two helicopter service providers to the offshore energy industry with global operations. The company has operational primarily in Europe, West Africa, North America and Australia.

As of March 2014, the company had a consolidated fleet of 494 aircrafts, which includes 96 leased aircrafts and 16 aircrafts held for sale.

Key Investment Positives

Revenue Diversification

For the year ended March 2014, Bristow Group had well diversified revenue in terms of geography. For the period, 41% of the company’s revenue came from Europe, 21% from West Africa, 15% from North America, 10% from Australia and 13% from other locations.

Bristow Group therefore does not have revenue concentration risk in terms of geographies. Further, for the period 2015-19, the company has identified growth opportunities that are also globally diversified. The company sees continued growth opportunities in North America, Europe and Australia.

However, the company sees new opportunities in South America, Russia and Southeast Asia. This means that Bristow Group’s revenue will be more diversified geographically over the next few years than it is today. In particular, exposure to high growth markets such as Latin America, Russia and Asia will be a big positive factor.

Strong Industry Dynamics

Bristow Group provide helicopter services to a broad base of major integrated, national and independent offshore energy companies. The company’s clients charter helicopters primarily to transport personnel between onshore bases and offshore production platforms, drilling rigs and other installations.

The company’s growth is therefore directly dependent on the growth of the offshore oil & gas industry. In the last few years, the offshore industry growth has been robust and some of the biggest oil & gas discoveries have been offshore.

According to EIA, the deep offshore is believed to contain more than 5% - an estimated 300 billion barrels of the world’s liquid hydrocarbon resources, or 12% of total conventional oil resources.

In 2013, deepwater liquid reserves accounted for 6% of global production. That share is forecast to rise to close to 11% of conventional oil output, or 9 million barrels per day, by 2035.

Therefore, the growth potential in the offshore industry is immense and this implies that the future growth outlook for Bristow Group is bright.

Strong Fundamentals

Bristow Group has strong fundamentals to support the company’s investment needs in a positive industry outlook. For the year ended March 2014, the company’s revenue increased by 11% to $1,669 million as compared to $1,508 million for March 2013. For the same period, the company’s EPS surged by 43% to $5.09 as compared to $3.57 for the prior year.

On the balance sheet front, Bristow Group had a total debt of $841 million as of March 2014. The company’s debt to EBITDA was 1.94 considering an adjusted EBITDA of $434 million for the same period. Therefore, the company has a comfortable leverage position.

Bristow Group also generated an operating cash flow of $232 million for March 2014 and the robust cash flow helps in the capital expenditure. The company’s free cash flow might remain negative as it makes big investments, but the investments will translate into higher cash flow over the next 2-3 years.

High Dividend Payout

As growth and profits increase for Bristow Group, the company’s dividends have also increased over the years. In 2012, Bristow Group initiated its first dividend of $0.15 per share on a quarterly basis. The dividend was increased by 33% to $0.2 per share in June 2012. Dividends were increased by another 25% to $0.25 per share in August 2013.

In May 2014, the company announced dividend increase of another 28% to $0.32 per share. The current quarterly dividend implies an annual dividend of $1.28 per share and a dividend yield of 1.6% based on the current stock price of $71.1.

Bristow Group is in a good industry with strong financial flexibility to grow. This means that the strong growth in dividends will continue as the company’s growth remains robust.

Strong Estimated Earnings Growth

Bristow Group is likely to grow at a strong pace over the long-term. Analyst estimates suggest that the company’s earnings growth is likely to be 13.7% for year ended March 2015, 21.7% for the year ended March 2016 and an average of 15.0% for the next five years.

This expected growth confirms my point above on continued increase in dividends. Investors can benefit through increased dividends and capital appreciation by investing in Bristow Group.

There can also be upward revisions to growth if the company acquires further aircraft to add to its overall fleet.

Conclusion

Bristow Group is in an excellent industry and the company is well positioned to grow at a strong pace over the next few years. The company is investor friendly and has been consistently increasing its dividends.

Bristow Group currently trades at a PEG ratio (five year forward) of 0.94 and this suggest that the company is still undervalued with more stock upside potential. Investors can consider this high flying stock with a long-term time horizon.

About the author:

Faisal Humayun
Senior Research Analyst with experience in the field of equity research, credit research, financial modelling and economic research

Rating: 3.0/5 (1 vote)

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