Subsea 7 (Buy, TP: NOK85.00) - Working capital concerns overdone
Despite flagging weak cash flow and unfavourable working capital changes as key negatives in its Q3 report yesterday morning, we believe the share price dropped too much when consensus started to focus on these concerns after the earnings call. Fluctuating working capital is (unfortunately) a natural part of the EPIC business model, and history shows that cash transition has been weak in many quarters in the past. We have made only minor estimate changes and reiterate our BUY and NOK85 target price.Subsea 7 is a provider of seabed-to-surface engineering, construction and services contractor to the offshore energy industry. Co. provides products and services required for subsea field development, including project management, design and engineering, procurement, fabrication, survey, installation, and commissioning of production facilities on the seabed and the tie-back of these facilities to fixed or floating platforms or to the shore. Co. also provides products and capabilities to deliver full Life of Field services to its clients. Through its i-Tech Division, Co. provides remotely operated vehicles and tooling services to support exploration, production and drilling activities.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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