SBO confirmed at BUY, TP EUR 42.0 - Well-equipped to sustain short-term headwinds
SBO is facing another market turmoil triggered by the outbreak of coronavirus, failure of OPEC+ to agree another production cut and the prompt reaction of oil majors to adjust downwards their capital spending, which implies less demand for drilling services and equipment. We reckon that SBO is again fully equipped to face the headwinds. With an order backlog of EUR 123 mn at the end of 2019 (the management hinted at a satisfactory order intake in 1Q 20e), strong balance sheet (net debt at EUR 30 mn and net gearing at 0.06x at the end of 2019) and high capex flexibility (maintenance capex below EUR 20 mn) we reckon that SBO should be able to safely transit through 2020e. We believe that SBO's share price overacted on the negative oil news flow, ignoring SBO's fundamental strength in the eye of the storm. Despite a lower target price of EUR 42.0 (EUR 65 prev.), we see substantial upside that warrants a BUY call. The management intends to stick to its initial proposal to pay a 2019 DPS of EUR 1.20, which implies a dividend yield of ca. 4% based on the current share price.Schoeller-Bleckmann Oilfield Equipment is engaged as a producer of high precision components and a supplier of oilfield equipment for the oilfield service industry. Co. focuses on non-magnetic drillstring components (non-magnetic drill collars) and downhole tools for drilling and completing directional and horizontal wells. The High Precision Components segment consists of the manufacturing of MWD (Measuring While Drilling) and LWD (Logging While Drilling) precision drillstring components. The Oilfield Equipment segment comprises production and distribution of non-magnetic drill collars, drilling motors and tools for downhole circulation applications, repair and maintenance services.
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