from advfn20 Mar 2013 19:13
Earnings forecasts
WH Ireland is holding fire with its earnings estimates until the Statoil contract is signed, but it is obvious that substantial earnings upgrades would follow assuming the deal completes. To give you some idea of the earnings potential, in the half year to the end of June 2012, Thalassa reported pre-tax profits of $351,000 on revenues of $4m to produce six monthly adjusted EPS of 4¢. Mr Cummins expects Thalassa to have made pre-tax profit of $1.3m on revenue of $13.8m for the year as a whole and was previously forecasting profits of $1.8m on revenue of $15.3m in 2013 (excluding the Statoil contract). On that basis, EPS rises from 10.1¢ in 2012 to 12.9¢ in 2013, at the current share price of 135p, Thalassa is being valued on 15 times current year earnings estimates before substantial earning upgrades to factor in the Statoil contract.
Moreover, it's not as if the current forecasts are off the mark because Thalassa announced in mid-January that it had signed a contract with SMG Ecuador, the Ecuador business of State Sevmorgeo Company, the Russian geological sea survey company, to provide and operate Thalassa's Portable Modular Source System as part of seismic data acquisition surveys being conducted in Ecuador by SMG Ecuador. This contract runs between February and June this year and has an initial value of $4.17m, or almost 30 per cent of Thalassa's current year revenue estimate.
It is also clear from the newsflow that there is growing demand for the company's expertise and services, so importantly current year revenue and earnings forecasts look well underpinned. WH Ireland calculates that the wider seismic data acquisition market is growing at between 10 to 15 per cent a year, which supports the 28 per cent growth in adjusted EPS this year (excluding Statoil). Moreover, in my view, earnings upgrades in the order of at least 60 per cent could be on the cards if the Statoil letter of intent turns into a firm contract.
True, there is always the risk that the Norwegian company doesn't close on the deal and, with Thalassa's share price currently around 135p, or almost double the 73p level it was trading on ahead of the contract news, there would be a number of stale bulls heading swiftly for the exit. In this scenario I could easily see Thalassa's shares heading back towards 100p, wiping out a quarter of its market value.
Blue-sky share price gains
But this is all about Thalassa confirming in the coming weeks that it has signed a contract with Statoil, which would undoubtedly put a rocket under its share price again. That's because after factoring in a 60 per cent earnings upgrade to 2014 estimates of around 9.3p a share I can see Thalassa producing EPS of 22.5¢, or 15p at current exchange rates. That assumes Thalassa's turnover rises to almost $25m to generate pre-tax profits of $3.2m in 2014, almost double the $13.8m revenue forecast for 2012. So, at 135p, the shares are in effect trading on
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