NOL - Media reports of potential rights issuance weigh on stock price

On March 10, NOL’s share price fell 8% to close at S$0.94 on media reports that the carrier may be planning to raise capital. Reuters suggested that Temasek is considering issuing rights for NOL and other government-linked companies, but stated that no mandate has been issued. After the market closed, NOL announced that it has not entered into any agreements that would require disclosure with the Singapore Stock Exchange. The company also stated that it does not comment on such reports.

Based on our discussions with the company, NOL has over US$1.0bn in undrawn credit facilities at its disposal to fund working capital and its fleet expansion plans, which have been pushed back given the more challenging operating environment. Thus, we assume that the company may not need to raise equity to meet its cash requirements. However, should market conditions deteriorate further, we would not rule out the possibility of equity raising initiatives down the road. Given the uncertainty surrounding the containership market, we would avoid NOL stock until we begin to see further indicators of inflection.

Our 12-month SOTP-based target price of S$0.80 is based on a target fleet multiple of 0.47X, underpinned by an estimated average return on fleet of 7.4% (2009E-10E) and WACC of 11.3%. Maintain Sell.

An unexpected recovery in US would potentially derail our thesis. We also note that the industry is trying to exercise greater capital discipline by plying at slower speeds and anchoring idle containerships. Admittedly, undemanding valuations could limit downside, as well.

Sponsored Links

Related Posts by Categories