Federal Int'l soars on hope of tie-up
(2003-10-06)

Federal Int'l soars on hope of tie-up

WHAT'S happening at oilfield services company Federal International?

This is the question many market watchers are wondering as they watched the stock zoom up some 153 per cent this year, with much of the rally coming during the last four months.

It closed three cents up at a record 59.5 cents last Friday.

Just four weeks earlier, it was hovering at around 40 cents, and up until early June, it had been languishing at around 20 cents.

So what's up? It appears that those piling into the stock are betting that international oil services majors are eyeing Federal's Gunanusa facilities.

When US-listed oil field services major Weatherford signed a strategic alliance agreement with Federal recently, it mentioned the competitiveness of this fabrication plant in Java.

Indeed, the facility could provide an important foothold for oil majors who are operating in the region. There is already speculation that other oil majors may have approached Federal to utilise this facility.

One quick way for an international oil services group to secure exclusive access to a regional facility in the face of fast-growing exploration activities in the region is to acquire a stake in the facility. Perhaps even buy into the company which owns the facility, which in this case would be Federal.

Whatever the case, the impact would be a huge inflow of contracts, boosting earnings.

Federal's earnings base is small: it chalked up a profit of just $2.4 million last year.

So the company's bottom line would be very sensitive to any new tie-up which leads to new order flows. The impact on the stock price would also be huge.

Whether such a scenario pans out is moot. But it appears the market is betting on it.

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