MedservRegis — Reverse takeover transforms prospects

MedservRegis is the combination of Medserv plc based in Malta with Regis Holdings Ltd of Mauritius via a reverse takeover that was completed on 25 June 2021. The company is a leading player in the provision of logistical and support services from shore bases for the oil and gas industry in the Mediterranean, the Middle East, Sub-Saharan Africa and South America. It provides a variety of logistics and support services to international energy companies (IECs), national oil companies (NOCs) and engineering contractors operating offshore in the Mediterranean region as well as onshore in the Middle East and Africa. The combined group also serves non-oil and gas customers of Regis in mining and other heavy industries. The group’s headquarters are in Malta and its shares are listed on the Malta Stock Exchange.

The reverse takeover adds Regis’s operations in South Africa, Uganda, Mozambique and Angola to Medserv’s portfolio of shore bases in Malta, Cyprus and Egypt and its Oil Country Tubular Goods (OCTG) operations in Oman, Iraq and the UAE. Both Regis and Medserv’s strategies had been seeking to grow internationally, extending their customer bases. The addition of further non-oil and gas customers should offer the potential to add new growth streams. As well as operations, Regis adds financial strength bringing €14.4m of liquid assets onto the balance sheet, which should help to facilitate pursuit of a number of opportunities that are presenting themselves. While oil prices and demand have been volatile in recent years, the current level is in a sweet spot for developing new fields with relatively low extraction costs, including areas where MedservRegis typically operates.

The restructured management team sees the new major shareholders from Regis, Dave O’ Connor and Olivier Bernard, assuming the principal executive roles of CEO and joint deputy CEO respectively, with Anthony Diacono retaining his executive chairman role. Karl Bartolo, who was Medserv CEO prior to the deal, is now also deputy CEO responsible for operations and business development. The team provides a wealth of experience across all of the business units.

While the statutory FY21 income statement is distorted by the reverse takeover accounting, FY22 is representative of the group as a whole and should benefit from an anticipated recovery in many of the company’s markets. Importantly the deal stabilises the balance sheet, lifting equity to €73m, as well as augmenting liquidity that should assist with the pursuit of the growth opportunities that exist. In addition, it should strengthen the position with respect to refinancing group debt and seeking to lower future financing costs. All of this is subject to the pandemic effects continuing to dissipate and the usual geopolitical risks for MedservRegis. The ability to operate in such markets is a clear positive when it comes to customer relationships but carries a level of uncertainty.

We expect the shares to be trading on just over 20x FY22e EPS with further recovery and growth to follow. Our capped DCF returns a fair value of €0.78 per share, but we feel the company has the ability to outperform our expectations given the depressed starting point. In addition, future finance costs may be reduced with a 1% lower WACC increasing the value to €0.99. Alternatively, assuming a terminal growth rate of 1% rather than the zero we normally apply would increase the value to €0.91 per share. MedservRegis also appears to be strategically well positioned in what is likely to be a consolidating oil services market.

MedservRegis is the combination of Medserv based in Malta with Regis Holdings of Mauritius via a reverse takeover that was completed on 25 June 2021. MedservRegis shares are listed on the Malta Stock Exchange. The company is a leading player in the provision of logistical and support services from shore bases for the oil and gas industry in the Mediterranean, the Middle East, Sub-Saharan Africa and South America. It provides a variety of logistics and support services to international oil companies (IOCs), national oil companies (NOCs) and contractors operating offshore in the Mediterranean region as well as onshore in the Middle East and Africa.

The top-level group structure of MedservRegis is shown below:

MedservRegis is the holding company for the combined group, with the principal top level holding subsidiaries covering Medserv’s operations in Europe, the Middle East, Africa and the Americas including the METS group of companies under Medserv M.E., and the newly introduced Regis Holdings companies covering its logistical services and support operations in Sub-Saharan Africa.

Established in 1974, Medserv is one of the leading providers of integrated logistical services to the global oil and gas industry. Prior to the reverse takeover it operated through two operating segments. The ILSS (integrated logistics and support services) segment has been the historical core of the group. The OCTG (oil country tubular goods) segment was introduced to the group by the €39m strategic acquisition of METS (Middle East Tubular Services) in 2015, which diversified the group’s services offering and extended the geographic footprint in line with its strategy.

The ILSS segment operates shore bases in support of customers that mainly consist of international oil companies (IOCs) and national oil companies (NOCs). The bases offer an integrated services offering including:

ILSS’s historical focus has been on the Mediterranean, centred on its Maltese operations based in the Malta Freeport in the Port of Marsaxlokk, primarily servicing the offshore Libya oilfields. It has seen significant expansion in its eastern Mediterranean business in recent years due to sizeable offshore discoveries in Egypt and Cyprus. This has strengthened its Cyprus base, which has been operating since 2014, and also led to the establishment of operations in Egypt in 2018 to support the development of the offshore Zohr gas field. Having failed to establish a presence in Trinidad, in Q418 Medserv won a shore base management contract worth over €30m in Suriname, which was executed in 2019, and established Medserv’s presence in the region, which includes the rapidly developing Guyana oilfields.

The supply chain management services that form the OCTG segment are essentially the METS business in the Middle East, notably in the UAE, Oman and Iraq. As well as stockholding operations, which account for the bulk of revenues, it also provides machining services including repair, rethreading, inspection and rig ready/rig return services. Since acquisition it has been expanding existing operations, notably through the 10-year supply chain management agreement with Sumitomo in Oman signed in 2017, which saw it move the focus of its operations to a new, larger facility at Duqm. In addition, it has successfully developed new international opportunities such as Abu Dhabi and continues to seek further contracts to extend into new markets. It also started to extend operations through cross selling opportunities into the ILSS base network.

Regis Holdings was a holding company incorporated in Mauritius in 2014 and is the parent of the Regis Group. Regis Group has subsidiaries operating in integrated logistics and other services from shore bases in Sub-Saharan Africa, with interests in South Africa, Mozambique and Uganda. The current structure of the Regis Group follows a restructuring of its activities as a precondition to the deal, which involved exiting several businesses and delisting from the Mauritius Stock Exchange.

The group offers integrated logistics services, capital equipment, consulting engineering services, steel structures, procurement management and personnel solutions to its customers in the oil, gas, mining and other heavy industries. The Regis Group business units are being incorporated following the restructuring within the reverse takeover and are described below.

In Angola, Regis Management Services has provided manpower, equipment and parts for clients operating at the Sonangol Integrated Logistics Services (SONILS) marine logistics base in the Port of Luanda since 2007. With an area of 200 hectares and a 2km quayside, the SONILS base is the largest oil service centre in Africa. Its customer base has significant overlap with that of Medserv and includes ENI, BP, ExxonMobil, Total, Schlumberger and Baker Hughes.

Regis Mozambique’s 50,000m2 logistics service centre in Pemba, Mozambique, is well located to serve the major discoveries of natural gas and graphite made in the Cabo Delgado province in the north of the country in recent years. An insurgency in the region has disrupted activity in the current year, with Total and other clients suspending operations at least temporarily, although Pemba is some distance from the affected territory (c 400km) and does lease equipment to third parties.

Regis Uganda is an investment seeking to capitalise on opportunities in the Uganda oil and gas market. In particular, the construction of a proposed 1,445km crude oil pipeline from the Albertine region to the port of Tanga on the coast of Tanzania is regarded as a major opportunity. It has imported initial equipment facilitating the establishment of a logistic service centre to provide services to oil and gas customers, technical service providers and general heavy industry, all of which should benefit from the investment being made.

Historically, the associated companies listed, including the ongoing AV Holdings, have made minimal contributions to the profits of the Regis Group.

The beneficial owners of Regis Holdings were its CEO Dave O’Connor and the COO Olivier Bernard through DOCOB Ltd, an investment vehicle incorporated in Mauritius.

The reverse takeover was effected by a share for share exchange that resulted in the issue to DOCOB of 47.89m new shares in Medserv at a value of €32.5m in exchange for its holding of the entire share capital of Regis Holdings Ltd. The transaction essentially purchases operating assets in Sub-Saharan Africa and €14.4m of cash and other liquid assets.

The newly issued shares represent 47.1% of the enlarged capital of MedservRegis, the new name for the combined entity. Under separate agreements with Medserv’s two major shareholders (the beneficial owners being Mr Diacono and Mr Duncan), the Regis vendors also acquired an aggregate 2.92m existing shares at €0.68 per share in MedservRegis on 1 July 2021, further consolidating DOCOB’s position as the major shareholder of MedservRegis with 49.99% of the issued capital. The free float reduced to 19.1% following completion.

A three-year call option has been agreed by DOCOB with both the major Medserv shareholders to acquire further holdings at a discounted price, which if exercised would initiate a mandatory bid.

The deal appears to be a strategic positive for both parties. Regis Holdings has been seeking to develop its interests internationally. In recent years, Medserv successfully expanded its shore bases to include Egypt and the management contract in Suriname, as well as adding new IOC customers such as Total, BP and Exxon. However, it had seen a substantial contraction of its equity base due to the volatility of the upstream oil and gas markets in recent years compounded by the COVID-19 pandemic, which might have threatened its investment in additional opportunities. The enlarged group appears much better positioned to pursue incremental business, with Regis adding not just its operations to the group but also contributing around €14.4m to overall group liquidity. In addition, it introduces new end market customers to the group for the first time, including mining companies and heavy engineering contractors.

Financially the transaction strengthens the group balance sheet with combined gross assets of around €171m at H121 including cash and cash equivalents of €17m and gross liabilities of €98m including €23m of lease liabilities.

The new management structure of the enlarged group reflects the reverse takeover. Following completion, David (‘Dave’) O’Connor was appointed group CEO, continuing the role he held at Regis Holdings prior to the deal. Olivier Bernard, who was previously the chief operating officer of the Regis Group, has been appointed deputy CEO (finance, administration, investment and trade). Karl Bartolo, latterly the CEO of Medserv, is appointed deputy CEO (business) with overall responsibility as head of business and company operations.

Anthony Diacono continues in his role as executive chairman for the expanded group and retains a significant stake in MedservRegis. The other major shareholder, Anthony Duncan, who had been a director of Medserv since inception in 2001 and of Medserv Operations Ltd since 1987, resigned from the board following completion of the deal, as did Etienne Borg Cardona and Kevin Rapinett. Dr Laragh Cassar retains the role of company secretary and non-executive director of the enlarged group, with Joseph Tabona also continuing as a non-executive director.

Keith Norman Grunow was also co-opted to the board as of completion and was appointed to the audit committee as an independent non-executive director. He is a retired businessperson and strategic investor who was previously independent chairman of Regis Holdings.

Under the terms of the deal, the board capacity was increased from seven to eight directors, although at present it comprises seven people: Mr Diacono, Mr O’Connor, Mr Bernard and Mr Bartolo as executive directors, and Dr Cassar, Mr Tabona and Mr Grunow as non-executive directors. A further director is expected to be co-opted to the board in the near future, with the appointment valid until the next AGM.

The company developed its strategy to include the servicing of upstream onshore oil production and exploration in the Middle East ‘easy oil’ markets (known oil locations on-shore) in order to mitigate some of the cyclicality and the uneven nature of the ILSS business. Due to lower extraction costs these operations tend to be rather less affected by changes in the oil price, although the pandemic added an unexpected level of operational disruption.

A further element of strategic evolution is to add servicing of non-oil customers through the base network, which Regis has already implemented to a degree.

The strategic objectives remain:

As usual during times of adverse market conditions, Medserv management responded swiftly to the challenges presented by the global pandemic. The objective was to preserve liquidity and maintain a positive EBITDA, both of which were achieved. Management immediately acted to adjust the cost base through lower operating costs and remained proactive as the market developed through 2020. It also benefited from government support initiatives.

The oil and gas market was severely affected by the global pandemic in 2020 as demand fell by a record amount, with sectors such as transportation seeing activity fall at unprecedented rates. While recovery in demand is occurring as lockdowns are lifted and activity levels increase, it is not expected to return to 2019 levels until 2023, with continued uncertainty in global demand related to the ongoing effects of the COVID-19 pandemic.

Unsurprisingly given the adverse market dynamics, the oil majors once again curtailed their investment in upstream E&P activities. The price of crude oil has recovered progressively to around $82/barrel from the lows of last year’s crash in April 2020, when the Brent crude oil price bottomed out at c $16/barrel, and is now approaching its highest level since 2014. In addition, natural gas demand and prices have also recovered strongly. As a result, many of MedservRegis’s IOC customers are beginning to schedule the resumption of their onshore and offshore drilling programmes.

We perceive the sweet spot for MedservRegis operations to be in the range of around $40–80/barrel, when most of its customers operations become economic, unlike regions with higher extraction costs. The areas where MedservRegis operates tend to have some of the lowest extraction costs, with more resilient levels of operating expenditures. In addition, Medserv has worked with its customers to obtain cost efficiencies. This has enabled it to establish its position as a trusted services partner for the IOCs and helps to mitigate pricing pressure.

The transition to a greener, more carbon neutral energy market appears to have gathered pace during the pandemic and could have an impact on demand for hydrocarbons in the future. Much will depend on the philosophies of governments and on the neutral hydrocarbon policies of the oil majors. While the transition to renewables continues to gather pace, it is widely expected that the natural gas share of fuel supply is likely to be maintained for some time at 23–25% as it is cleaner than other dirtier carbon-based fuels such as coal.

While the global economic outlook and the oil and gas markets remain uncertain largely as a result of the continued effects of the pandemic, there have been several positive developments for MedservRegis over the last 18 months. In addition, with the progressive recovery in demand and in oil and gas product prices from the low points in April 2020, the potential exploration and development of both new and incremental production by customers in the group’s operating regions are progressing positively. As ever with MedservRegis, geopolitical turmoil in those regions can add a further layer of potential operational disruption to what are often lumpy and long-term contracts, with the Mozambique insurgency being the latest major issue.

Medserv signed three major long-term contracts in FY20 that should help to underpin recovery and growth in the next two years.

On 9 October 2020 Eni North Africa (EniNa) awarded Medserv Malta a three-year contract to provide logistics marine base and associated services at Malta Freeport for its oil and gas operations offshore Libya from 1 January 2021. There is an option to extend for a further year and the contract effectively represents a renewal of the longstanding relationship between the groups.

On 14 October 2020 METS announced a key, long-term contract in Abu Dhabi by Tenaris Global Services, a global OCTG pipe supplier. The contract forms an integral part of the supply chain for the provision of OCTG vendor managed inventory (VMI) services to Abu Dhabi National Oil Company (ADNOC) initially for a three-year period with two potential one-year extensions. It commenced on 1 October 2020. The award represents new market penetration for the OCTG segment and followed a long period of active discussions seeking to offer supply chain management services into ADNOC as part of its outsourcing of tube handling operations. METS is to provide tube handling, equipment, as well as yard & inspection services from a new Tenaris Global Services facility in Abu Dhabi Industrial City. It also again highlights the more consistent nature of OCTG service contracts.

On 20 October 2020 a three-year framework agreement was announced for OMV, an Austrian oil and gas company, for the provision of international freight forwarding services. The agreement, which has potential to be extended for a further two years, is to provide transportation services using the Malta base for equipment in support of OMV’s onshore operations in Libya.

In addition, the ILSS contract with ENI Egypt for its offshore operations was extended until the end of FY21 and with activity picking up in the Zohr field we would expect further continued engagement by the customer.

The company has continued to secure new business in H121.

An agreement was announced with ExxonMobil on 12 January to extend the provision of ILSS from the shore base in Limassol, Cyprus, for a further two years to support evaluation of its offshore concession in Block 10.

Later in January, the Egypt base secured BP as a new customer in the region, to provide materials and warehouse management services for its drilling and gas production projects in the country. In late May this was followed by a second contract award, the largest secured by MedservRegis in Egypt. The contract is for the integrated facilities management of the West Nile Delta site in Idku. The three-year contract has an option to extend by a year and commenced in June 2021. It should lead to an improved performance from Medserv Egypt in H221 without significant additional capital commitment.

In April the company announced an agreement with an existing oil major customer in support of its development projects at the Bahr Essalam gas fields offshore Libya. The one-year contract with an option to extend for a further three years should see the Malta base handling a considerable volume of OCTG and equipment.

In addition to the recovery and growth of existing operations and cross selling of services as the businesses are integrated, there are number of additional new regions where opportunities are being targeted by the enlarged group.

These include Libya, Angola, Senegal, Mauritania and Guyana.

For the existing business in ILSS a resumption of drilling activity in Cyprus and Egypt in the eastern Mediterranean together with the new BP contracts should lead to stronger performance through 2023.

We also expect the Malta base to become increasingly busy with the new contracts offshore Libya supported by increasing onshore activity in Libya as evidenced by the OMV contract. A 33-well offshore drilling programme is planned from Q322 supported from Malta. The company is also increasing the number of non-oil and gas logistics projects handled by the Malta base.

Although it has no presence in Angola, it is a country where Regis has longstanding relationships in ILSS supplying numerous IECs and oilfield services companies including the SONILS Oil Service Centre. Opportunities exist as the pace of activity picks up further following the initial recovery from the global pandemic effects, which saw activity fall sharply. As Angola, Africa’s second largest producer after Nigeria, is thought to be facing depleting reserves, it is expected that investment in well development and E&P will also be required to maintain production levels in the future, all of which should play nicely into the extended MedservRegis portfolio of services.

In Uganda, MedservRegis is well positioned to participate in two large-scale and related energy projects that are seen as critical for the country’s economic prospects. The main project is the construction of the $3.5bn East African Crude Oil Pipeline (EACOP) project, which will run 1,444km from the oilfields in Uganda to the Port of Tanga in Tanzania. It is expected to be the longest heated oil pipeline in the world and is scheduled for commissioning in 2025. Although it is environmentally sensitive, we feel the priority for the government is such that the timetable will be adhered to and the first major contract awards were being made in April by the IECs involved, TotalEnergies of France and CNOOC of China in developing the oilfields, which may require an overall investment of $10bn.

MedservRegis and METS have also been in discussion with TotalEnergies and Vallourec for the last couple of years regarding the provision of lifting and handling equipment, as well as OCTG machine shop and other tube services for the production facilities in the Albertine Rift. We expect Uganda to become an important market for the enlarged group, enhanced by additional cross-selling opportunities.

While the Suriname facilities management contract was completed in 2019, the establishment of the group in the region is leading to additional potential. The group is in exclusive talks to establish a shore base facility in Suriname and has been invited by an international energy customer to tender in Guyana as part of a consortium to build and operate another shore-based facility. These could provide additional revenue streams towards the middle of the decade as well as further raising the profile of the group in the region.

In Mozambique the declaration of force majeure by TotalEnergies in June is expected to prove temporary, with recent security agreements suggesting that a resumption in activity for the main customer is possible by H222, although near-term activity will be depressed. Activity servicing other customers from the base continues.

As well as the opportunity in Uganda in support of the proposed pipeline, management expects to see an upturn from supply chain logistics activity in its Middle Eastern markets, notably Abu Dhabi and Oman where volume growth is expected to be greatest.

As the group expands to more territories, there is an opportunity for METS to participate in integrated offerings to customers and significantly increased cross-selling opportunities.

As is evident in the H121 report for the group, the treatment of the deal from an accounting perspective as a reverse takeover provides little comparability with what has been reported by Medserv. The reverse takeover accounting means that historical numbers presented are those of Regis Holdings Ltd with the Medserv financial performance effectively being treated as an acquisition with assumed consolidation from 25 June 2021 with some reclassification of net assets.

As presented the reported figures do not bear direct comparison to the previous annual Medserv plc accounts for FY20 and before, nor to our estimates. As the previously available financial statements show the historical performance of the Regis Group before it was heavily restructured at the time of the deal, direct comparison is also difficult. Clearly from FY22, when both businesses are fully consolidated, the combined performance will become more pertinent.

In addition, the annually required Financial Analysis Summary (FAS) of 28 June 2021 is also presented using acquisition accounting assumptions for Medserv of Regis. Thus it is also unlikely to be useful for a direct comparison in FY21 unless restated. The FAS is produced annually for Medserv by its stockbrokers Rizzo Farrugia, in line with Malta Stock Exchange requirements to meet the company’s responsibilities regarding the €20m 6% Bonds 2020/23 note programme issued by the company in 2013. Two forecasts are released in line with the requirements: one for the issuer (Medserv plc) and one for the guarantor of the notes (MOL). MedservRegis is still required to present an FAS in FY22.

In this note we aim to provide what we can to add comparability and a view of the operational continuity of the Medserv operations so its former free float shareholders can have a clearer picture of the business development for the ongoing Medserv activities and the combined MedservRegis group in the future.

We recognise that this approach is not aligned with the actual accounting procedures and may lead to some discrepancies due to estimation, but FY22 should be a more recognisable estimation for the new group.

We present historical numbers for FY20 and FY19 as those of Medserv plc on both the front-page summary table and the financial summary table on page 17. Our FY21 estimated numbers in those tables are an estimation on the FAS basis for accounting (12 months of Medserv and 6 months of Regis) and FY22 is the actual estimate for MedservRegis.

We also present our best estimate for FY21 of the key figures under the reverse takeover accounting method that will see H221 performance of the former Medserv and Regis Group businesses consolidated with the H121 MedservRegis performance reported in the 30 August 2021 statement.

The FY20 report was released on 30 April 2021 subsequent to the initial announcement of the share for share exchange; we include a brief summary of Medserv’s performance for completeness. Clearly the performance was heavily affected by the pandemic as well as the disruption in the global oil and gas markets. While conditions started to stabilise in H220, an improvement in contract activity is expected to commence later in 2021. In addition, the management contract in Suriname was executed almost entirely in FY19, contributing €30.5m of lower-margin revenues to ILSS, with a residual of just €0.2m booked in FY20.

Excluding Suriname, group revenues fell by 18% to €32.2m. All of the Suriname revenue was booked in the ILSS segment, which saw revenues fall 25% to €16.33m.

The ILSS operations in Malta and Cyprus were significantly affected by travel restrictions and closures of ports imposed by governments, compounding the deferral of exploration projects by some customers until H221 in response to the adverse market conditions. Key highlights of the results are

MedservRegis reported H121 results on 30 August 2021. The report adopts reverse takeover accounting and reflects the trading performance of the Regis Holding Ltd group for the period. As the transaction completed close to the period end on 25 June 2021 and H121 results are unaudited, the report did not include the performance of the former Medserv plc business for the five days in H121, which we assume will be consolidated in the FY21 income statement.

A summary of the reported H121 performance is shown below.

Encouragingly the balance sheet metrics compare favourably to the H121 forecast made for the consolidated operations in the Shareholder Circular of 21 June 2021 and reflect the financial position of the combined group. Adjusted net debt excluding leases for the combined group stood at €45.5m at H121, which compared to €52.5m at FY20 and €52.2m at H120.

Included in the H121 report for MedservRegis was a brief summary of income statement metrics for the former Medserv operations. prospectus?

As can be seen the continued impact of the COVID-19 pandemic and the oil market crisis in 2020 led to a sharp reduction in revenues for both the ILSS and OCTG segments in H121 compared to H120. However, sequentially the numbers represent a modest improvement over H220. In our view this is slightly unusual insofar as the OCTG segment is normally more reflective of production in the easy oil markets of the Middle East in which it operates, rather than the more volatile upstream oil & gas investment cycle that influences the performance of ILSS.

By region Malta remained the largest contributor to revenues with €3.0m followed by the OCTG operations in Oman (€2.6m), ILSS in Egypt (€1.5m), OCTG in the UAE (€1.5m) and Iraq (€1.1m) with Cyprus contributing €1.0m to ILSS and Suriname running at a small revenue of €0.1m.

In terms of EBITDA, Oman (€1.7m), Iraq (€0.2m), Egypt (€0.2m) and Malta (€0.1m) all made positive contributions, with Cyprus (loss €0.1m), Suriname (loss €0.1m) and the UAE (loss €0.5m) making losses.

Encouragingly the overall group EBITDA performance remained positive with a resilient performance in OCTG mitigating the unsurprising return to loss in ILSS given the lower levels of activity.

After depreciation and amortisation D&A, finance cost and taxation, the net loss for the Medserv group (pre combination) increased by 19% to €4.54m.

On 28 June 2021 Medserv plc provided a forecast for FY21 in the annual FAS, which was consistent with the forecasts made in the Shareholder Circular issued on 20 May 2021 for the deal, which also included income statement forecasts for FY22 for the combined MedservRegis.

The main elements of the Issuer overall group forecast for Medserv are shown in the table below.

Our estimates for FY21 and FY22 are shown in the financial summary table in Exhibit 13. While we expect the FY22 figures to be on a normal consolidated basis, as previously stated the FY21 forecast income statement reflects the deal as if it has been a straightforward acquisition by Medserv of Regis.

On that basis we estimate group revenue should grow 37.4% in FY21, largely driven by the initial six months’ contribution of €6.0m from consolidating Regis Group’s operations in Sub-Saharan African for the first time in H221. We estimate the FY22 contribution from Regis to be €18.0m although there are risks to that as uncertainty persists in Mozambique and Uganda could also face delays.

We expect the ongoing businesses of the ILSS segment of Medserv to increase sales by 23% in FY21 to €21.0m and by 43% in FY22 to €30.0m as the oil markets recover and new contracts servicing the Libyan, Egyptian and Cypriot oil markets increase volumes. Although there may be some opportunities to generate additional business in the Suriname/Guyana region, we have made no allowance for these in our forecasts.

We expect the OCTG segment to grow more modestly as volumes increase in Abu Dhabi and Oman. Our estimates are for 1% growth in FY22 and 4% in FY22.

Clearly the above estimates will not correspond with the income statement numbers in the MedservRegis statutory report for FY21, which will be accounted for under reverse takeover procedures although the balance sheet should be representative of the combined group at the period end. As Regis Holdings has been heavily restructured prior to the deal, the previously reported historical financial performance of Regis Holdings does not provide a clear basis for modelling the reverse takeover income statement.

However, by disaggregating and reconstructing the income statement to include a full year of Regis Group activities and H221 estimates for the former Medserv activities, we can provide some estimates for top level highlights for the full year. We have assumed in this that the Regis businesses repeat their H121 performances in H222, although given the situation in Mozambique this may be optimistic.

Our resulting estimates for reported MedservRegis FY21 income statement are shown below:

As normal we have used a capped discounted cash flow (DCF) approach as our primary methodology to value MedservRegis, although we have made one adjustment. We have used the FAS forecast FY21 year-end net debt (€44.3m) and lease positions (€15.8m) as the starting point and discounted cash flow for five years thereafter before assuming zero terminal value growth. Our calculated weighted average cost of capital (WACC) for the group is around 7.9%, given the high debt levels despite still assuming a relatively high cost of equity (10%) to reflect the country risk and the historical volatility of cash flows.

The calculated value at present is €0.78 per share, although if growth opportunities are secured and the company successfully refinances, then the value could increase significantly. A sensitivity table for our DCF with respect to WACC and terminal growth rates is shown below.

If a refinancing is achieved that significantly reduces debt costs, it could have a significant positive effect on the DCF value. A 1% reduction from our calculated WACC would increase the value to €0.99 per share.

Following the pandemic and the disruption in energy markets, it is expected that there may be a significant round of consolidation in the energy services sector. While MedservRegis may well respond to opportunities to strengthen its market positions, it also currently appears to represent an attractive presence in the ILSS and OCTG sectors for those seeking to consolidate their own positions or indeed extend into these segments.