MRM (ASX) Time to off-load this Mermaid

Originally posted by danginvestor ↑

Appreciate that you can't pay bills with hard assets sitting on the docks. But are we assuming that MRM isn't earning anything? Cash are flowing in and out from its operations. And while I admit things are too tight for comfort, and a bit difficult to work out the exact cash flow as we don't know enough details - but i'll give it a shot later anyway - I'm comfortable enough to say that it's not going to go broke, and might not even need a cap raising.

In terms of its NTA valuation... MRM is smart enough to change the measure to a re-sale value instead of an earning method. This mean they can claim more non-cash "losses" and so will get tax credits back.

But taxman coming to the rescue aside, MRM has depreciated some $200M off of its vessels at FY16 and from memory, it reported a loss of some $3.8M from sales of PPE. Assume that PPE meant the sales of vessels and MRM had sold some $40M of them by year's end, that's a 10% below book value.

How much did MRM impair its vessels in FY16?

Vessels at beginning: $938M
Dep/amortz: $80
Non-Cash Impairment: $100M

So they've dep 80/938 = 8.5% off the boats; then further impair 100/858 = 11.7%.

That is a bit more conservative or right on the market price. Note too that the vessels they're offloading are smaller, more common and probably older vessels than ones they're keeping.

Note also that after any major acquisition, certain assets and functions are rationalise and made redundant.

Sure it's bad timing, as it turns out... but note that $US1 Trillion of oil projects were canceled or delayed due to the oil crash. So it will come back on at some time in the near future.

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Yes, key question is can MRM survive the revival; will it need to raise equity to survive... or could it borrow just a bit to repay the $75M that's due - at higher interest rate for sure - then hope that FY18 will bring the jobs back and cancel the debt.

Assume the worst and it need to raise equity. How much? Not the entire $390M that's for sure.

As mentioned before, at least $200M of debt are normal state of corporate capital management. Just roll that over.

Further, with NTA and debt ratio being relatively low - i.e. the debtors aren't risking a whole lot given the assets after the impairment are still above the debt burden... bankers might be convinced to not burn any bridges.

That and remember the old joke: if the bank loan you $200K, the bank owns you; if the bank loan you $400million, you own the bank.

But let's assume a dilution to raise $200M. at some 373M shares outstanding and $0.30 ps... say new price at $0.20... that would mean 1B new shares to total 1.373B shares.

Post cap raising... how much does a company with around $1.90NTA/3.68 = $0.51.6ps NTA, good balance sheet, no more new capital expenditure, a leaner and meaner operation with possibly 1 to two years from an oil and offshore revival.

Would a company like that be going at its book value? Higher?

If book value, for those shareholders who don't participate, it's still 20cents above current price; for those buying at 20cents, more than double.

Sure it could also go down to 10 cents post cap raising... but if the market get rational at some point, shareholders in MRM would do alright.

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It's extremely unlikely it will go broke but not impossible. The directors have been explicit about the financial position as posted earlier.
"In response to the difficult trading
conditions experienced during the past
year, in February 2016 the Company
agreed a number of amendments to
the terms and financial covenants of
its Syndicated Loan Facility with the
members of the Syndicate. On 24
August 2016, the Company received
approval of some further amendments
to the terms and financial covenants
of the Facility and committed to
an increase in the annual principal
repayments over the remaining term of
the Facility to $75 million, payable in six
month instalments of $37.5 million, with
the first payment due on 31 December
2016. The principal repayments will
be funded from the proceeds of the
Company’s ongoing vessel sales
programme, operating earnings
and any additional funding options
available to the Company."
I think operating earnings are negative in this half, the vessel sales haven't achieved what they wanted. To clarify they are still building vessels in this half, next year they look to be in the clear IMO.
Why wouldn't I wait until the 31 Dec or March? when the half year result comes out to see what "additional funding options means"?

It's extremely unlikely it will go broke but not impossible. The...