1998 Stocks for Mom
May 07, 1998

To Mom from Sharon
by Sharon Wagner ([email protected])

Trico Marine Services Inc.
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2401 Fountainview, Suite 626
Houston, TX 77057
(713) 780-9926
$23 1/8 as of May 5, 1998

Dear Mom,

I have a stock for you for Mother's Day that I think will provide well above average returns on your investment over the next few years. Trico Marine Services owns a large fleet of boats operating offshore in the Gulf of Mexico, the North Sea, and off the coast of Brazil. These boats are not exactly yacht types; rather, they haul mud, pipe, roughnecks, and supplies to the offshore drilling rigs. "Mud!" you say. Well, Mom, they use a special mud as a down-hole lubricant when drilling oil wells, and someone has to haul it out there.

Trico operates a diverse fleet of over 90 vessels providing support services to the offshore oil and gas industry. To this end, it owns and operates the 3rd largest supply fleet in the Gulf. The fleet comprises supply boats, crew boats, lift boats (used to construct, remove, and service drilling platforms), and line-handling boats (for transferring oil from a platform to a tanker). Trico acquired all of the outstanding shares of Saevlk Supply ASA of Norway in December of 1997. Saevlk provides marine support services to the oil and gas industry, operating 17 vessels in the Norwegian and U.K. sectors of the North Sea.

The offshore sector is poised for continued growth and expansion, with strong demand for mobile rigs, marine construction, and transportation services worldwide, according to speakers at last month’s 22nd Annual International Marine/Offshore Industry Outlook Conference. Conference speakers said the offshore market, driven by a surge in deepwater drilling in the U.S. Gulf and off West Africa, is on track to enjoy the best years since the “boom days” of the late 1970s. Think of this Mom -- there is a risk that the demand side of the equation will become so overheated the industry will not be able to keep pace. Or how about this -- existing oil and gas reserves will only be able to meet one-third of the world’s energy demand by 2010. So that means 12 years from now, the remaining two-thirds of the world's oil and gas will have to come from new sources.

In addressing the issue of whether an oversupply of work boats will develop since some 80 boats are on order for the U.S. Gulf market, some industry observers believe the drive for larger, better equipped, and more modern and efficient vessels will continue, and that this class of vessel will be fully employed. It looks like those companies with the more modern fleets will be the industry leaders.

Trico’s strategy has been to upgrade its fleet through acquisition, refurbishment of existing vessels, and construction of new vessels. It has two new 230’ supply vessels to service the deep-water rigs in the Gulf of Mexico and two 270’+ vessels for North Sea service under construction. Two of these four will go into service this year. Trico also has the first state-of-the-art SWATH design high-speed crew boat capable of transporting 250 men to the work sites off the Brazilian coast ready to go into service under a five-year contract with Petrobras.

Trico reported fully diluted earnings of $2.11per share on revenues of $41.6 million for 1997 compared with $0.81 per share on revenues of $20.6 million in the previous year. The improved results were primarily attributable to the expansion of the company’s fleet of vessels from acquisitions in the Gulf of Mexico and the North Sea, and to an increase in the average vessel day rate for all of the company’s vessel classes.

First Call and Zacks have buy ratings on Trico, too. EPS estimates for the full year for 1998 and 1999 are $2.74 and $3.46, respectively. This works out to a P/E ratio of 7.5 and a PEG well under 0.50 for 1999. The projected growth rate for the next 5 years is 30%, compared with 22% for the industry. Trico shares have traded in a range of $45 1/2 to $15 1/4 over the past 52 weeks. A 20% decline in crude oil prices led to the decline from last year's high. When crude prices resume their upward bias, Trico is well poised to pull ahead of the pack as a leader in the industry.

Mom, I really believe Trico Marine Services has positioned itself strategically to take advantage of this anticipated demand over the next decade.

I know Mom, this sounds like a stock more for a pop than a mom. But hey, Father’s Day is coming up next, and I’m suggesting an offshore driller for him.

Love,
Sharon

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* A Stock for Mom represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.