Lamprell shares plummet after the company warns of a "cautious environment" in 2017

 
Courtney Goldsmith
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Lamprell's forecasts look grim
Lamprell's forecasts look grim (Source: Getty)

Shares in Lamprell plummeted by as much as 14 per cent this morning after the oil rig builder said revenue would hit the lower end of its target and warned of a "cautious environment" in 2017.

The figures

In a trading statement today, the oil rig builder said full-year revenue for 2016 is expected to be about $700m (£562.2m), lower than the $871.1m it reported in 2015, while revenue for 2017 is forecasted to be on the lower end of the $400m to $500m range.

Shares fell as low as 14.07 per cent at 87.87p in morning trading following the news.

The business announced two significant bids it won this year, including a $225m contract with ScottishPower Renewables and a $90m contract from Master Marine.

Why it's interesting

The industry has faced tough times since oil prices dropped in mid-2014, causing companies like Lamprell to be hit by contract cancellations.

Payments for projects received in the second half of the year will give net cash flow a boost, but analysts are cautious about what this means for 2017. The company has pointed out most of its customers' 2017 budgets are already set, leaving limited room for further spending.

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Lamprell, which mainly focuses on contracts around the United Arab Emirates, said revenue was hit by lower levels of walk-in work as well. "Most of the rigs stacked in Lamprell's facilities throughout the year remained inactive, having generated only limited refurbishment revenue," it said in a statement.

As a cost-cutting measure, the company has reduced its staff, including some senior management level jobs and yard workforce.

What Lamprell said

John Kennedy, executive chairman said:

The board recognises and welcomes recent change in oil and gas market sentiment and the likelihood of stronger product pricing in 2017, especially as the year elapses. However, we also recognise that all our customer 2017 capital budgets are already established and in place, and that there is little expansive flexibility in the associated expenditures.

For these reasons, the company continues to believe that 2017 will prove a particularly cautious environment, and will continue to maintain tight control over expenditure and expenses and, more especially, continue to position Lamprell for work in future years.

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What analysts said

Daniel Slater from Arden Partners said:

Today’s statement confirms that current trading for Lamprell continues to be challenging.

We expect the market to give limited attention to short-term financial performance (not least as the strong cash position reassures on the company’s long-term future) and be more focused on the potential for further contract wins.

We remain cautious on the potential of this to meaningfully filter down for Lamprell in the coming months, and while we acknowledge the potential for further contract wins, we remain on a Neutral recommendation.

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