Subsea 7 Shares Rise over 10 Percent on Record Backlog

The cutting edge IMR vessel ‘Seven Viking’ of ULSTEIN’s SX148 design is ‘Ship of the Year 2013’. Photo credit: Ulstein

Aug. 15 (Bloomberg) — Subsea 7 SA, an offshore oil services provider, rose to the highest level in more than seven weeks in Oslo as improving margins are seen boosting earnings.

The shares in the London-based company, climbed as much as 3.4 percent to 125.1 kroner, the highest intraday level since June 25, and increased 2.6 percent as of 1:38 p.m. in Oslo, making it the biggest gainer on the Bloomberg European Energy Index. More than 2 million shares traded so far today, about 35 percent more than the three-month average daily volume.

“Good project execution and better pricing should drive rapid margin expansion and earnings growth” in the second half through 2015, Katherine Tonks, an analyst at Royal Bank of Canada, said in a note. “The worst of its Brazilian problems are now behind it,” she said, upgrading her rating on the stock to outperform from sector perform.

Subsea 7 is up 11 percent since Aug. 13 after reporting a record order backlog. That overshadowed a $300 million provision for the Guara-Lula project off Brazil. Sales rose to $1.68 billion in the second quarter from $1.48 billion a year earlier, the company said yesterday.

Tendering Activity

The Guara-Lula project had delays during the quarter because of supply chain disruptions, bad weather and a delayed start in pipeline fabrication, the company said on June 26.

“Management’s view of the financial risk related to the project remains unchanged and tendering activity continues to be high,” Goeran Andreassen, an analyst at RS Platou Markets AS, said in an e-mailed note.

Yesterday’s report “provides increased confidence in strong earnings momentum in 2014 and 2015,” he said, raising his estimate for adjusted earnings before interest, taxes, depreciation and amortization for this year by 10 percent.

With established fields maturing and finds becoming more difficult to develop, Subsea 7 has benefited from rising demand for the subsea engineering services. The company operates projects around the world for companies including Statoil ASA, Petroleo Brasileiro SA and BP Plc.

– Stephen Treloar, Copyright 2013 Bloomberg.

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