Tuesday is proving to be a miserable day for the Lamprell (LSE: LAM) share price. Prices of the oilfield services provider have collapsed 24% to 51.8p per share as it has warned of a severe funding shortfall.
The UK engineering share fell as low as 45.4p per share early in the session. This was its cheapest since the middle of December. But does the Lamprell share price collapse provide a great dip buying opportunity for long-term investors like me?
Cash crisis
In today’s update Lamprell said that it needs to raise between $120m and $150m by the end of the third quarter. The company needs to embark on fresh fundraising “to fulfil its near-term working capital needs and to then meet its medium-term strategic objectives.”
Lamprell is aiming to raise the cash through a combination of debt and equity or purely by raising equity. The oil rig builder’s balance sheet has deteriorated since the start of the year. And the $112m in cash it ended 2020 with dropped to $78.1m as of May as project milestones were achieved.
The UK small-cap has warned that its cash pile will continue falling too, “as projects progress and in particular the IMI rig projects draw working capital as part of the normal project cycle.” Lamprell inked a three-year engineering design services contract with International Maritime Industries (IMI) in November.
“Severe liquidity constraints”
Lamprell is in “advanced stages of discussion” with lenders to soothe “severe liquidity constraints.” The engineer is seeking to secure working capital facilities of up to $90m with the banks, and the business noted that approval is expected.
However, it warned that the full $120m-$150m may need to be tapped from shareholders if talks fall flat. The money will be used to deliver two rigs under the IMI contract in the second half, to fund a joint venture with IMI in Saudi Arabia, and to boost its exposure to renewable energy.
Lamprell is “actively managing its liquidity position by deferring creditor payments” in the meantime, it said. And it warned that “there is significant risk that the group will be unable to meet its contractual obligations as they arise.” This could threaten the UK share’s ability to continue as a going concern.
Is Lamprell a buy?
Clearly, Lamprell isn’t a British stock that’s for the faint of heart. Okay, the company’s drive towards providing services for green energy could be the foundation for robust long-term profit growth. The business could also see demand for its services improve sharply as the economic recovery kicks in.
But, for me, the risks Lamprell face remain too high to tempt me to buy on today’s dip. The UK share’s liquidity issues are obviously front and centre right now. But the problem of falling fossil fuel demand makes me extremely concerned for the firm over a longer time horizon.