Offshore-related stocks veered off course by market sell-down

More tellingly, their stock prices are still not showing any sign of a technical recovery in this morning’s trading, despite a general stabilisation of the broader market. What sparked the fear in this particular sector is that it has always been extremely cyclical, going through several boom and bust cycles that have historically spanned over five years.

Both these counters have also tracked the sharp 10% contraction in crude oil prices, which have fallen off in the wake of fears of a recession. However, we contend that the offshore cycle has changed dramatically in the past 10 years. Fundamental strength in demand for energy has resulted in oil prices permanently trading at an average of more than five times its previous historical prices.

The last down cycle also lasted less than two years, with this fundamental demand factor for energy overcoming the short‐term blips. Moreover, in the boom years, the yards have built up an orderbook that can easily tide them over during the period of uncertainty. We believe the current weak market sentiment towards this sector remains a good opportunity to accumulate.

Elsewhere, Ezion has pulled back sharply in the morning session, following its trading halt over the past two trading days. It has announced a deal in Australia that opens the door for many more such lucrative contracts over the long term. This is also another excellent opportunity to accumulate, in our opinion.