Odfjell Technology (Buy, TP: NOK70.00) - Growth slowing, but deep valu...

We see an increased risk of contracts in the well service segment being postponed or not renewed and have lowered our 2025–2026e EBITDA by 13–14%, leaving us c20% below consensus. The stock is trading at a 2025e FCFE yield of c17%, which we believe limits the downside risk, while we struggle to find any clear catalysts for the equity story ahead. We reiterate our BUY, but have lowered our target price to NOK70 (80).

Petrobras set to reduce 2025 capex

Petrobras is expected to reduce 2025 capex from USD21bn to around USD17bn, according to a Reuters article today. Petrobras has a 5-year capex plan, but there are usually changes to its plans, and “current year” / “near-term” spending has a track-record of being revised lower (2024 capex was recently cut c24% to USD13.5bn–14.5bn), as Petrobras has struggled with value-chain delays. The updated spending represents YOY growth in 2025 of c21% (versus c50% earlier). The article mentions equipment pri...

Limited excitement for oil services from TotalEnergies’ Strategy & Out...

With total capex set to be flattish through this decade (organic capex lower in the out-years), TotalEnergies’ Strategy & Outlook presentation provided limited excitement for oil services. Strong capital discipline and allocation was maintained, with targeted oil production growth (3%) on flattish capex and shareholder returns being a top priority. With several large-scale developments for the next few years already defined (oil services mostly contracted), we consider its plan supportive for cy...

Steady upcycle building in duration

Our 18th annual spending survey lends support to an extended upcycle for offshore-focused oil services, with 2024–2025e offshore spending growth of 5–8%. As value chain bottlenecks (FPSO, subsea) are unfolding, we believe the foundations are in place for a longer and more stable upcycle, supported by oil companies’ discipline. In sum, service companies’ discipline and oil companies’ conservativeness are likely to extend the upcycle, avoiding past ‘boom and bust’ mentality.

Limited change in EP spending

After reviewing oil companies’ most recent spending plans, we estimate offshore spending growth of c7% YOY for 2024, in line with our November update. Growth is concentrated, with Petrobras being the key driver, favouring service companies with Brazil exposure. Looking ahead, further spending growth is likely to be partly limited by total spending already being on a par with operating cash flow. Delayed energy transition spending is seen as positive for oil services, while recent E&P consolidati...

Odfjell Technology (Buy, TP: NOK80.00) - Growth pause, but deep value

Odfjell Technology rounded off 2023 with solid cash flow, helped by a working capital unwind. We believe the results leave scope for it to raise dividends this year (we forecast NOK3.3 annualised), while the company is also looking at M&A and other investments. 2024 is lining up to be somewhat slower on growth (after two strong years), but management remains upbeat for 2025 and beyond. We reiterate our BUY and NOK80 target price.

Odfjell Technology (Buy, TP: NOK80.00) - Dividend and growth in focus

Our Q4e EBITDA of NOK214m is in line with consensus. We expect the working capital build in Q3 to partially reverse in Q4, paving the way for solid FCF (we forecast NOK157m). Growth is likely to slow in 2024e, after two strong years, before picking up in 2025e; we estimate 2024 EBITDA growth of 3% YOY and 7% in 2025. Key for the equity story, we will focus on the outlook for future growth potential and signals on higher shareholder distributions, reflecting the strong cash flow yield (2025–2026e...

Large-cap commentary supports long-term offshore upcycle

Key takeaways from SLB, Halliburton and Baker Hughes Q4 earning calls include positive commentary on the ongoing offshore upcycle. They see continued growth in global EP spending in 2024 (high-single to low-doble digits), driven by offshore and international markets, while North America onshore outlook are less favourable. Lastly, SLB sees potential for more than USD100bn in global offshore FIDs in 2024 and 2025, while Baker Hughes expects over 300 subsea tree awards annually for the next 2–3 ye...

Solid medium-term, but mixed long-term signals from Petrobras

As the largest global consumer of deepwater oil services, Petrobras’ strategic plans tend to attract investor attention. We consider its new 5-year plan mixed, but with solid support for near- to medium-term offshore activity from increased and high spending in 2024–2026. On the other hand, 2027–2028 spending looks set to trend down c20% sequentially, despite having been revised higher compared to its previous plan. Total spending is seen up 31% compared to the previous plan, driven by downstrea...

High dayrates in Petrobras PLSV tender

Bids have been opened for the large Petrobras PLSV tender, with the key takeaway the solid dayrates offered, supporting our view that PLSVs likely will be key earnings contributors in the coming years for companies active in Brazil, namely Subsea7, DOF (via its 50% of DOFCON) and Paratus (via its 50% of Seabras). While it is unclear how many vessels Petrobras will award under this tender, we believe the high dayrates and solid industry discipline are key. For high-spec PLSVs that are mostly offe...

Offshore spending shifts to 2024

After reviewing oil majors’ and Petrobras’s Q3 reports and spending plans, we see a shift in offshore spending from 2023 to 2024. We now estimate offshore spending growth of c7% YOY for 2024 (c5% in our August update), mainly on delayed Petrobras spending. We expect further growth to be partly limited by total spending already being on a par with operating cash flow. Delayed energy transition spending is seen as positive for oil services, while recent E&P consolidation underpins the oil companie...

Odfjell Technology (Buy, TP: NOK80.00) - Set for revaluation

Odfjell Technology (OTL NO, Buy) - Set for revaluation (16 pages)

Total shows capital discipline and boosts shareholder return

Today, Total announced its strategic update. The main takeaways are no changes to its long-term spending versus 2023 and increased focus on shareholder returns as it boosts its payout ratio. From an oil service perspective, we find it surprising that Namibia was not featured more in the strategic update, as Total has had significant exploration success there. From a development perspective, Suriname is highlighted to see FID in 2024 and first oil in 2028, and we believe this region will be impor...

Focus remains on the out years

Longevity of upcycle is key Our 17th annual spending survey suggests an extended upcycle for offshore-focused oil services. High utilisation, long lead times, and growing backlogs indicate oil service capacity could be tested in subsea and offshore drilling segments. Meanwhile, oil companies are less able to boost spending, with cash flow and capital priorities key. We expect investor focus to shift to 2025. Our top picks are Subsea7, Noble, Seadrill, Odfjell Drilling and Borr Drilling.

Odfjell Technology (Buy, TP: NOK80.00) - Trading at attractive multipl...

We expect EBITDA to be broadly flat QOQ and free cash flow to improve meaningfully, helped by the unwinding of working capital (our Q2e EBITDA: NOK194m, and FCF: NOK117m, no proper consensus available). We have raised our 2024–2025e EPS 2% due to higher estimates for the well services segment, partly offset by higher interest rates on its bond. The stock is trading at industry-leading multiples with its 3.0x 2024e EV/EBITDA, versus closest local peer Archer at 3.7x and the median of companies in...

Northern Lights

Northern Lights

Odfjell Technology (Buy, TP: NOK80.00) - Set for more attention and re...

The refinancing of Archer could see more attention put on Odfjell Technology, since Archer is one of its closest peers. Archer’s equity placement at NOK1/share and current share price imply a post-refinancing EV/EBITDA of 5.1x based on the mid-point of its 2023 EBITDA guidance. In comparison, Odfjell Technology is trading at a 2023e EV/EBITDA of 3.5x; applying Archer’s multiple yields a fair value of NOK82, 60% above Odfjell Technology’s current share price, while applying a broader peer group’s...

Odfjell Technology (Buy, TP: NOK80.00) - Still a re-valuation case

Odfjell Technology delivered yet another strong quarter, with Q4 EBITDA 5% above our estimate, supporting 2–5% positive revisions to our 2023–2024e EBITDA. We still see significant upside potential, with the stock trading at a 2023–2024e EV/EBITDA of 3.2x–2.6x, well below peers and broadly unchanged since November, with the c100% share price increase over the past three months primarily explained by estimate revisions. We reiterate our BUY and have raised our target price to NOK80 (70).

Odfjell Technology (Buy, TP: NOK70.00) - Greater margin confidence

Despite trading up 50% since November, Odfjell Technology now screens even more attractively on earnings multiples thanks to higher estimates. The discount to peers has widened for the same reason. With an asset-light business model and impressive earnings track record (even during industry downturns), we do not believe the potential is fully reflected in the share price. We reiterate our BUY and have raised our target price to NOK70 (50), suggesting 90% upside potential from the current share p...