Seatrium shares jumps after share consolidation. Here's what you need to know

What happened?

Some shareholders of Seatrium were surprised to see the stock trading at a much higher price today.

From a closing price of S$0.091 on 6 May 2024, the share price of Seatrium opened to trade at S$1.81 today.

The share price of Seatrium rose through the day to close at S$1.94 on 7 May.

As a background, Seatrium announced previously that it will consolidate 20 shares into 1 share that are held by shareholders.

Thereafter, it also announced a comprehensive transformation roadmap during its Investor Day, as well as a a share buyback programme.

This will make Seatrium one of the Singapore companies currently undergoing a transformation, together with Starhub and SingPost. 

If you hold 10,000 shares in Seatrium before the exercise, you will own 500 shares after the consolidation exercise. 

I saw some questions in the Beansprout community asking how the share consolidation will affect shareholders. 

In this post, I will share more about what we need to know about Seatrium’s share consolidation. 

What you need to know about Seatrium’s share consolidation 

#1 - Potentially lower market trading volume

The total number of outstanding shares in Seatrium will reduce from 68,217 million to 3,410 million after the exercise. 

Correspondingly, Seatrium’s share price will also adjust in the same ratio. The share price closed at S$0.091 on 6 May 2024, the last day of trading before the exercise. The theoretical ex-price after the exercise should therefore be S$1.82. 

In other words, Seatrium’s share price rose by 6.6% on 7 May based on its closing price of S$1.94. 

The minimum bid size for shares trading below S$0.20 is S$0.001, compared with S$0.01 for shares that are priced at above S$1.00. Each incremental change in the share price is thus 10x higher after the share consolidation.

An investor would need to fork out S$194 for a minimum board lot of 100 Seatrium shares, compared to S$9.10 previously.

Hence, Seatrium’s trading volume may be reduced following the share consolidation.

#2 - No direct impact on valuation 

Similar to the share price, with a smaller number of outstanding shares, earnings per share (EPS) and book value per share (BVPS) would increase by 20x. 

There is therefore no direct impact on the price-earnings multiple (PE ratio) and price to book ratio (P/B) of Seatrium.

#3 - No direct impact on the financial position and earnings outlook

Share consolidation does not change the fundamentals of a company, including its financial position and earnings outlook. 

A company’s earnings prospects are determined by the macroeconomic environment, the industry dynamics and competitive landscape, and the company’s efforts to win orders and improve operating efficiencies. 

#4 – Focus on fundamentals 

At the Investor Day in March 2024, Seatrium laid out a target to achieve an earnings before interest taxation, depreciation and amortization (EBITDA) of more than S$1billion.

The company expects to be able to achieve this with revenue of S$10-12 billion by 2028, as well as annual cost savings of S$500 million. 

It also expects to achieve a return on equity exceeding 8.0% and net debt to EBITDA of 2 – 3x.

Seatrium achieved EBITDA of S$236 million on revenue of S$7,291 million in FY23. This will translate to an EBITDA margin of 3.2%. 

With a net orderbook of S$16.2 billion as at end December 2023 comprising 27 projects with deliveries till 2030, the EBITDA target of S$1billion by 2028 does seem attainable. 

This is especially so if it can achieve the S$500 million of cost savings a year. 

What would Beansprout do?

Looking at the fundamentals, Seatrium’s prospects are still closely tied to oil prices. 

Higher oil prices has rejuvenated offshore activities, and may lift demand for offshore equipment. 

However, higher construction cost and interest cost for new equipment could deter investments into newbuilds. Just in March, Saudi Aramco announced plans to reduce capital investment by roughly US$40 billion between 2024 to 2028.

For Seatrium’s share price to rise meaningful, the company would have to get more orders to generate stronger revenue.

This is especially so given the potential increase in net debt based on its guidance of a net debt/EBITDA ratio of 2-3x. 

Even if the company is able to achieve an EBITDA of S$1 billion in 2028, this may translate to a profit of about S$270 million assuming a depreciation of about S$450 million and interest expense of about S$280 million.

This would mean that the stock is currently trading at a price-to-earnings ratio of about 25.5x. 

With the bounce in Seatrium's share price following the share consolidation, we will have to believe that the company is able to achieve more orders to be more positive on the stock. 

Alternatively, we can also consider other Singapore stocks that are currently going through a transformation. 

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Related links:

• Seatrium share price and analysis