Why MTQ's booming oilfield business is just a market wallflower

It's 4.3% yield should be attractive enough.

According to OSK, MTQ’s core business of oilfield equipment servicing is booming due to the high rig utilisation worldwide, yet this gem has gone completely unnoticed by the market.

This sharp undervaluation may be the result of low liquidity, which is not a fundamental worry. All the indicators (profitability, balance sheet, cash-flow, valuations) are positive, and the step-up to another record-high core profit should be the catalyst to a revaluation.

Here's more from OSK:

20% ROE. Strong cash generator. 4.3% yield and rising. MTQ has been steadily profitable through the GFC, and earnings are now jumping to a new level. The company generates strong operating cash flows with modest capex requirements. Dividends have increased from 2¢ in 2008 to 4¢ in 2012. We expect the dividend to be raised to 5¢ this year on the back of record earnings.

Acquiring Australian subsea player. MTQ has made a takeover offer for Neptune Marine Services at a 33% discount to NAV, effectively writing down almost all the intangibles left on Neptune’s books. Having flushed almost all the goodwill from its books over the last two years, Neptune is at the cusp of a turnaround. It is a cheap entry-point for MTQ into the subsea segment which is experiencing an upswing as a result of increased offshore oil & gas activity. As of today, MTQ owns 80% of Neptune.

Oil & gas play at 5.6x FY13F P/E. The current business is available at a steep discount, and should Neptune begin delivering normal returns, this multiple drops below 4.5x. Peers in the oil & gas industry, with similar margins, trade at 11.5x on average.

We have assumed breakeven profits in Neptune until further clarity emerges, and this provides a large upside potential to estimates. The strong cash flow of the MTQ business plus Neptune yields a DCF-value of $2.00 at 11.5% WACC. While liquidity is a concern, nimbler investors can still purchase this stock today at a massive discount.