SLB - Embedded Expectations Analysis - 2018 11 12
Schlumberger Limited (SLB:USA) currently trades at historical lows relative to UAFRS-based (Uniform) Assets, with a 2.3x Uniform P/B. However, even at these levels, the market has bullish expectations for the firm, while management has concerns about their global market share, their sales across multiple segments, and margin compressionSpecifically, management may lack confidence in their ability to compete for growth opportunities in all parts of the E&P value chain, and to increase market share across the globe. Furthermore, they may have concerns about their full fleet production management model, and about their reliance on pricing tailwinds in order to improve margins. They may also lack confidence in their ability to leverage their position in the market after they have absorbed cost headwinds due to their current frac structure, and in the sustainability of high demand for high-end technologies in Drilling and Measurements. Also, they may lack confidence in their ability to drive growth in Latin America, and to improve margins in their Integrated Drilling Services segment. Further, they may lack confidence in their ability to offset takeaway constraints in the Permian, and to increase production in Shushufindi. Finally, they may be concerned about their ability to sustain strong product and equipment sales in Nigeria, Angola and Namibia, revenue growth in Far East Asia and Australia GeoMarket, and Surface Systems sales in North America
Schlumberger provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The company has four segments: Reservoir Characterization, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells; Production, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs; and Cameron, which consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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