Look beyond near-term challenges
Ocean Wilsons Holdings Ltd (LONDON:OCN) main investment is its controlling interest in Wilson Sons (WSON), the Brazilian maritime services company. Against a background of negative macro newsflow from Brazil, WSON has proved relatively resilient and stands to benefit from a resumption of growth both domestically and internationally. OCN’s international investment portfolio provides a balance to WSON and is run with a long-term approach. OCN's shares trade at a significant discount to a look-through valuation and offer a yield of 4.6%.
First quarter resilience
OCN provided an update and WSON reported Q1 figures in May. The result at WSON was ahead of consensus expectations, with revenues down 4.3% but EBITDA 13.3% ahead (pro forma including the Offshore JV). The slower Brazilian economy held back Container Terminals, but Towage Shipyards and Offshore were ahead, showing the benefits of diversity. OCN’s update indicated that the investment portfolio value was 1.9% above the end-2014 value.
Outlook
Immediate prospects in Brazil are challenging with the economy set to contract in 2015 and inflation running at over 8%. Difficulties at Petrobras also increase uncertainties for the oil-related parts of WSON, although long-term contracts provide some protection. None of this is new to the market and, positively, WSON is also geared to the global economy and volumes of international trade where long-term growth seems likely to prevail. Currency moves have affected near-term earnings (Brazilian real weakness), but WSON earns over 40% of revenues in US dollars, broadly neutralising the negative effect at the EBITDA level. Cash flow at WSON has benefited from the end of an investment cycle in 2013 and this should become more evident once the trading background becomes more positive.
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