News Column

Analysts Weigh Implications of Caverton's Entry Into Capital Market

May 19, 2014

Aderemi Makanjuola

The listing of 3.35 billion shares at N9.50 per unit of Caverton Offshore Support Group on the Nigerian Stock Exchange (NSE) on Tuesday will help the company not only to develop its business model but to also play big in the sectors in which it operates, writes Festus Akanbi

History is set to be made on Tuesday when, for the first time, an offshore support company, Caverton Offshore Support Group, will be listed on the Nigerian Stock Exchange (NSE) and for obvious reasons, the development has been causing excitement both in the oil sector and the nation's capital market.

For the oil sector, the excitement is driven by the fact that by going public, Caverton is in the process of opening a sufficient channel of funding which will empower the company financially to meet the challenges of operating in a highly capital intensive industry.

The access to funding, which the listing exercise will provide will also enable Caverton group to take advantage of the government policy of encouraging local capacity and ownership in the oil and gas sector.

Analysts also see the company's entry into the capital market as an invitation to the Nigerian investors to benefit from the opportunity being created for local initiatives in the oil sector by the current administration.

It is also seen as a blessing for the regulatory authorities in the capital market which had embarked on campaign to attract operators in the oil and telecom sectors to list as a way of deepening the nation's capital market.

It could be recalled that the Federal Government recently awarded most of its long-term oil contracts worth an estimated $40 billion a year to local companies, meaning global traders need to partner with them to access crude from Nigeria.

Analysts therefore see a better working relationship between these Nigerian companies and the likes of Caverton, a leading provider of marine, aviation and logistics services to local and international oil and gas companies in Nigeria.

Further Inroad into Upstream Oil & Gas Industry Coming on the heels of the historic listing of SEPLAT Production and Development Company as the first upstream company on the NSE, the listing of Caverton will provide further inroad into the upstream oil and gas industry.

Incorporated in June 2008, Caverton Offshore Support Group was formed in response to the Local Content Policy of the Federal Government, which is aimed at increasing indigenous participation in the oil and gas sector.

The group, made up of Caverton Marine Limited, Caverton Helicopters Limited and other subsidiaries, is an indigenous conglomerate and one of the leading providers of marine, aviation and logistics support services to the oil and gas sector.

Caverton Helicopters and Caverton Marine have provided services to clients working within the oil and gas industry for 15 years and have a global workforce of more than 600 employees.

Caverton Helicopters, which started operations with an intra-city helicopter shuttle services in Lagos in 2004, has grown steadily to become a dominant player in the oil and gas and aviation sub-sector within and outside the country.

On its part, Caverton Marine Limited, which was incorporated in 1999, has, among others, provided premium marine services to the Nigerian Ports Authority, Oando Plc, Total Fina Elf, African Petroleum, Shell Trading and Shipping Company and Shell Petroleum Development Company.

The company, having secured all necessary approvals, will therefore storm the stock market on Tuesday and list by introduction on the main board of the exchange. The company's 3.35 billion shares will be listed for trading at N9.50 per share. RenCap Securities Nigeria Limited is the stockbroker to the issue.

The listing is a major plus for the Federal Government policy of encouraging local capacity and ownership in the oil and gas sector. The company's 3.35 billion shares will be listed for trading at N9.50 per share. The listing will add about N32 billion to the value of the NSE market capitalisation.

Recovery of Primary Segment of Equity Market According to a market analyst at Associated Discount House Limited, Mr. Rasaq Abiola. "The listing of Caverton Offshore, which follows the successful IPO of Seplat, reinforces the recovery of the primary segment of Nigerian equity market. Even though investor sentiment is relatively weak at secondary market, as reflected in the five percent YTD loss on the NSE Index, new listings reflect the improved confidence of issuers, following the twin stellar performance of Nigerian equities in 2012 and 2013, when the NSE Index rallied 35 per cent and 47 per cent, respectively. More so, investor appetite for indigenous upstream oil and gas companies (with sound business fundamentals and corporate governance) is quite compelling, as demonstrated during the Seplat IPO with impressive domestic investor participation."

A market analyst at Sterling Capital, who also spoke on the listing, Mr. Sewa Wusu, said. "This is a good one that is coming to the market at the right time. The company will enjoy first-mover advantage. It is a positive one. The market offers them a good opportunity to develop their business model."

Wusu observed that there was a huge business opportunity for the Caverton Group, particularly now that the IOCs were divesting their investments, adding that the huge business opportunity also required huge finances.

"The listing will afford the company the opportunity to access funds and play big in the industry they operate. It will also entrench good corporate governance in the way the Caverton Group does business," he said.

Why Recourse to the Capital Market? The company's chairman and founder, Mr. Aderemi Makanjuola, explained that going to the market is a demonstration of the company's confidence that local firms with good focus can achieve the feat being flaunted by international companies in the oil services sector.

He said: "We felt that we were unwittingly made ambassadors for indigenous companies in the sector and that there was a need for us to demonstrate that indigenous companies with commitment and focus could achieve the same result as foreign competitors. In our minds, it simply meant that failure was not an option. So I would say that our listing is a follow-up on that burden of responsibility. Just that this time the focus isn't only on operational excellence and adherence to standards but more about the sustainability of our growth and the institutionalisation of the company.

He maintained that the decision to go public was signed off by the board of directors as far back as 2008. "We felt that given the significant opportunities in the market and our positioning, the use of debt-financing to fund our growth will be limiting and so we decided to carry out global case studies on companies with similar growth trajectories. We decided that the equity funding route will ultimately give the best return on capital. So the journey to tapping into the Nigerian equity market began with our private placement in 2008 which culminated in the imminent listing. The timing was determined by a combination of the prevailing market conditions and the company's current growth stage," he said. According to him, Caverton has got to that stage where it needs to access more capital in the sense that more contracts are coming in. The company, he said, also need to train more people and ensure that Nigerian engineers and pilots derive greater benefits from the evolving opportunities and that instead of hiring people from abroad and taking out the money, the company can help Nigerians to acquire the necessary capacities and hire them.

He said: "You will note that the oil and gas sector is not adequately represented on the NSE, representing less than three per cent of market capitalisation, thus denying the Nigerian public and foreign portfolio investors the opportunity to participate in the Nigerian oil and gas sector. Notably, increasing acreage/asset acquisition and rising production activities of indigenous companies in the upstream sector should further domesticate oil and gas businesses in the country, with expectation of further listing on the NSE, especially as the indigenous companies relatively depend on local funding in both equity and debt."

Expectation from the Capital Market On expectations of the market from the company, the chairman said the market and public should be interested in Caverton because of the following reasons: "We are a growing company that started from humble beginnings and we have a solid track record of operational growth, income growth and dividend history; we have a track record of safety and the highest possible international standards; and our company is representative of the indigenous oil and gas local content efforts and is a poster child for local content."

He added that Caverton is also growing operationally with a young fleet of aircraft and marine vessels in an industry that is highly technical and "we strenuously observe world-class standards as recognised by our key clientele. Importantly, being Nigerian, we are also investing in the development of infrastructure and the training and creation of local jobs and manpower, contributing our own quota to the country's GDP. "Also, we believe that given the investments that are going into the offshore and deep water, we are poised to benefit significantly from this trend and we would like Nigerians to also benefit from the actualisation of our vision to become the premier offshore support services provider in Nigeria and eventually in Africa."

Information supplied by the company's handlers indicated that Caveton's rising business profile has been powered by strategic partnerships, highly skilled management and staff, investment in cutting-edge technology and facilities, and strong financial performance. In the 2012 financial year, the company's turnover rose 47.6 per cent to N16.132 billion, from N10.928 billion in 2011. Profit after tax and exceptional items jumped to N1.035 billion from N60.373 million in the previous year, an increase of 1,625 per cent.

Even though its operations predated the passage of the Local Content Act by many years, Caverton has been seen as the poster-child of indigenous capacity and ownership since 2010 when one of its subsidiaries, Caverton Helicopters, edged out long-established foreign operators to win a $648 million, multi-year contract from Shell Petroleum Development Company for the supply and operation of seven helicopters. Won after a rigorous competitive bidding process, it is on record as the biggest contract ever awarded by the oil multi-national to an indigenous company.

The Shell contract opened the floodgate for Caverton, with more contracts pouring in from other oil majors such as Chevron, ExxonMobil, Total and Addax Petroleum. In 2013, the company commenced its first international operation after it won the contract to provide passenger transfer and pipeline surveillance services to the Cameroon Oil Transport Company (COTCO), a subsidiary of ExxonMobil.

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Source: AllAfrica

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