Aker Solutions (Hold, TP: NOK40.00) - Probably dead money for a while

Despite Q1 EBITDA 25% above consensus (but in line with our estimate) and 2024e EBITDA c10% higher on updated guidance, we struggle to get excited about the story. The investment case suffers from a lack of financial details for the OneSubsea JV, which we believe investors would need to support a higher valuation. Meanwhile, a forecast working capital unwind and weak cash transition would probably be in focus. We also sense growing concern about the 2026+ outlook as Norway projects end, and back...

Stronger performance than expected

Revenue and margin beat in Q1, and '24 guidance up on good visibility. Dividends will come — BUY

Aker Solutions (Hold, TP: NOK40.00) - Cash conversion in focus for 202...

We forecast Q1 EBITDA well above (28%) consensus, as we expect projects to reach profit recognition milestones, temporarily boosting margins. However, a working capital unwind is set to start in 2024 – likely as soon as Q1 – resulting in weak cash conversion and cash flow from operations. Following the partial sale of its subsea business, the investment case suffers from a lack of financial details for the OneSubsea JV, which we believe would be needed for investors to underwrite a higher valuat...

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...

Aker Solutions (Hold, TP: NOK40.00) - Larger SOTP discount warranted

While underlying operations keep doing well, our out-of-consensus concern on working capital unwind and lack of cash flow looks to be unfolding at an even greater magnitude and faster pace in 2024e. Also, we believe it will struggle to meet its 2024–2027 cash flow guidance. With limited clarity on OneSubsea JV financials, investors likely lack conviction to value the stake above transaction value. Lastly, investing surplus cash in fixed income securities is not what shareholders want, in our vie...

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...

Aker Solutions (Hold, TP: NOK47.00) - Sequencing of events is key

In addition to the Q4 results, we believe the main share price drivers will be: 1) more clarity on the financials of its subsea JV; 2) a shareholder distribution update; and 3) a likely unwind of its favourable working capital situation. We see the first two as potential positives and expect news on both with the Q4 results, and today’s SLB report might reveal details related to the subsea JV. We expect the likely working capital unwind to occur over multiple quarters, resulting in a poor cash t...

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...

Aker Solutions (Hold, TP: NOK47.00) - No change to cash flow guidance

There was no change to the NOK800m annual cash flow guidance for 2024–2027, while details were provided on the EBITDA bridge, leading us to raise our 2024e EBITDA by c20% due to non-cash items, suggesting weak cash conversion of only 33%. Working capital is still elevated, with management’s comments suggesting unwinding, which would hurt cash flow in the coming years. The stub is trading at a c9% FCF yield and a 2024e EV/EBITDA of 4.1x. We reiterate our HOLD and NOK47 target price.

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.

Northern Lights

Aker Solutions (Hold, TP: NOK45.00) - Stub properly valued

Q2 was solid, with a 20% EBITDA beat versus consensus and 2023 revenue growth guidance increased to c30% YOY versus c15% previously. However, both were primarily driven by subsea, which has a limited effect on the valuation, as it is partially divested at a fixed price. We have raised our 2024–2025e stub EBITDA by 6%, but in our valuation, this is fully offset by the weaker USD (subsea cash proceeds are in USD). On our estimates, the stub is trading at 2024–2025 EV/EBITDA of 4.5–4.2x, which we c...

Aker Solutions ASA: 1 director

A director at Aker Solutions ASA sold 22,912 shares at 36.560NOK and the significance rating of the trade was 70/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years clea...

Takeaways from Houston

We spent the week in Houston, meeting management from several E&P and service companies (onshore and offshore). We remain firm in our belief that the outlook for offshore looks solid and that nothing has changed with regards to future activity despite the recent oil price weakening. Conversely, we believe the oil price decline has to a greater degree challenged economics for (private) US onshore companies, resulting in lower activity levels. Adding well productivity deterioration to the equation...

Bay du Nord development said to have been postponed

According to local media reports, Equinor has delayed its Bay du Nord development by up to three years. There are limited details available, but according to the news reports it referenced rising costs. The project, which we consider to be a complex development in remote harsh environments, has been delayed before as well. We had expected to see FID in 2024, with most of the work for oil services taking place from 2026 onwards. No meaningful contracts have been awarded to the oil service industr...

Aker Solutions (Buy, TP: NOK45.00) - Attractive stub valuation

Q1 was good, with a 4% EBITDA beat, solid cash flow, and decent order intake. We have raised our 2024e EBITDA by 8% largely due to subsea, which has no valuation impact as we value subsea on the transaction value with SLB and Subsea 7. Assuming our fixed-price valuation of subsea, we calculate the stub is trading at a 2024e EV/EBITDA below 2x. We see an attractive entry point and reiterate our BUY and NOK45 target price, reflecting a 2024e EV/EBITDA of c4.5x for the stub.

Thoughts around project sanctioning at USD70 oil

With Brent oil prices trading close to USD70/bbl, we sense investor focus shifting to the risk of upcoming field developments being delayed or cancelled, potentially resulting in a soft read-across for oil services. On the positive side for project sanctioning, we stress that oil prices are coming down from an elevated level, being well above oil companies’ planning/breakeven prices. Thus, the two prices are now becoming aligned, supporting a limited negative impact on project sanctioning. On th...