Posted on February 18, 2017

The stock price of Gulf International Services (GIS) is expected to rebound this year with visible recovery in crude oil prices, QNB Financial Services (QNBFS) has said.

In a company report released on Thursday, QNBFS has said that an expected recovery in crude prices could lift the GIS stock price as the performance of the drilling segment of the company was closely linked to oil prices. "We rate GIS an 'outperform' with a price target of QR39 for its share. While our price target offers upside, the stock remains in a 'show me' mode," the report said.

Citing last year's operating results of the company in-line with its estimates, QNBFS said that it was quite optimistic about GIS growth in 2017. "We are updating our model to factor in renewed rig deployments and 2016 results. While the fourth quarter results of the company was negatively impacted by the write-off of the Al-Rayyan rig, operating results were generally in-line with our estimates. More importantly, all other nine offshore rigs seem to be under contract as per the February rig report. This represents a 50 percent increase against only six rigs being deployed as of end-2016, QNBFS said.  "We have been stating since August that upside to our estimates was possible given previously idle assets were being listed as warm stacked and thus could be potentially deployed in the medium term. Now with the offshore fleet being potentially deployed, we feel optimistic about growth in the drilling segment in 2017," the report said.

QNBFS has said in the report that it expects 30 percent growth in company's drilling revenue in 2017. "We use a $97,000 blended rig rate in 2017 along with an average utilisation of 89 percent. Our segment net income goes from a loss of QR46 million in 2016 to a gain of QR92 million in 2017. Given no detailed data on rig deployments and rates, our estimates are based on our assumptions," the report said. About the risk factors, the report said volatile oil prices remain a substantial risk to regional equity prices. Further decline in rig rates, rig utilisations could pressure the stock. GIS also faces concentration risk given its exposure to QP and its affiliates, the report added.

source: Qatar Tribune