Originally recommended in Investment Digest issue 680, dated October 6, 2010, at $36.56 by Dow Theory Forecasts.
“The world’s leading provider of helicopter services to the oil and gas industry, Bristow Group, Inc. (BRS) stands to benefit from increased activity in deepwater exploration and production. … Over the past several years, management has positioned the company to capitalize on this uptick in deepwater activity. Fleet upgrades and sales of older aircraft have lowered the average age to twelve years, while the large and midsize helicopters that are becoming the industry standard comprise roughly 75% of Bristow’s fleet.
“In the near term, the company stands to benefit from a tightening supply-demand balance for heavy helicopters. During a conference call to discuss Bristow’s results in the fiscal third quarter ended Dec. 31, 2011, CEO William Chiles noted that increasing demand for high-specification helicopters—especially in the North Sea, Brazil and West Africa—and manufacturers’ ability to supply these aircraft has tightened the market. … Bristow also made a major strategic shift over the past year that should pay off for shareholders.
“After investing heavily in replacing older helicopters with modern aircraft, the firm has decided to reduce capital expenditures and return more cash flow to investors in the form of share repurchases and dividend increases. Management has indicated that the company’s reliable cash flow could enable the firm to grow its dividend by 10% to 15% annually. Although the stock currently yields only 1.2%, the prospect of a rising dividend could attract investors. Moreover, the firm plans to rely more on sale-leaseback financing over the next several years to improve liquidity. At present, Bristow owns about 93% of its fleet. By entering into sale-leaseback financing deals on 20% to 30% of its helicopters in the next three to four years, Bristow will free up additional funds for organic growth projects.
“Management has also established criteria that should make the company more judicious about the contracts it accepts. The firm will also focus on shifting capital expenditures to the areas of highest return. We may see this plan in action during the company’s 2012 fiscal year if margins and demand in the Australian market don’t improve. With the oil and gas industry’s demand for helicopter services rising, Bristow Group rates a buy when the stock dips below 42.”
Elliott Gue, The Energy Strategist, March 8, 2012