Vermilion Compass: Weekly Equity Strategy

Are the Lows "In" for this Pullback? While we are not yet out of the woods, we continue to see evidence that suggests the lows may be "in" for this pullback. Last week (4/23/24 Compass) we discussed the possibility that further downside was limited on the S&P 500 due to a multitude of reasons (SPX had simply filled 2/22/24 gap support that we had been discussing since late-February, Russell 2000 and Equal-Weighted S&P 500 were holding above key supports, short-term oversold conditions, subdued ...

Norsk Hydro (Sell, TP: NOK50.00) - Q1 slightly on the soft side

Q1 EBITDA was c2% below consensus, with a somewhat soft mix, as Extrusions and Aluminium Metal, the two largest segments, were below forecasts. We have increased our 2024e EPS by 7% on the USD2,600/t spot aluminium price, and 2025–2026e by 2% on the Q1 results. We are 30% below consensus 2025e EBITDA; we do not see enough demand to raise aluminium prices above the marginal producer’s cost, as the price appreciation in recent weeks suggests. We still expect aluminium prices to decline with lower ...

Demand growing faster than supply - BUY

Q1'24 EBITDA of NOK 5.4bn, '24e-'26e EBIT up 2-3% post report. Market tightening rapidly in Q1 - demand up 5%, supply up 3%. Reiterate BUY — TP NOK 75.

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

EBITDA 2% below on higher cost

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Renovation rules now a reality

The Energy Performance of Buildings Directive (EPBD) was approved on 12 April, requiring the modernisation of existing real estate in the EU, and will soon enter the Official Journal of the EU. Member states will have two years to incorporate the provisions into their national legislation. While Q1 is Nordic construction’s low season due to winter effects, we see some downside risk to Q1e consensus and longer-term to 2024–2026e EBIT on lower development gains. We recommend a stock-picking approa...

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

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...

Norsk Hydro (Sell, TP: NOK50.00) - 30% below 2025e EPS consensus

We expect aluminium prices to come down with falling global energy prices, and reiterate our SELL and NOK50 target price. We are 30% below consensus on 2025e EBITDA; we do not see large enough demand to raise aluminium prices above the marginal producer’s cost, as suggested by the price appreciation in recent weeks, we believe. We expect Q1 EBITDA of NOK6.2bn (results due at 7:00 CET on 24 April), driven by high hydropower production volumes in the quarter. We have reduced our 2025–2026e EPS by ...

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Focus shifting to entry points

Aramco’s rig suspensions came as a negative surprise for many, but we now sense a shift in focus among investors from concern to entry points for jackup names. As many suspended rigs are likely to aggressively look for work elsewhere, we expect mixed news flow to mean still-volatile share prices. Still, we believe current levels in our coverage universe represent a good entry point for long-term investors seeking jackup exposure.

Local Middle East contractors confirm Aramco suspensions

This morning local contractors ADES and ADC confirmed the suspension of rigs contracted with Aramco for 5 and 3 jackups, respectively. This brings the total confirmed suspensions to 16 jackups, while we believe a scenario with a total of 20–25 jackups being affected (of c90 contracted with Aramco) may unfold. Looking ahead, the key for the wider jackup market relates to how these rigs are marketed for work elsewhere, as it appears rigs are becoming available on short notice. Over time, we believ...

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Veidekke (Hold, TP: NOK120.00) - Low season ahead

Due to Nordic winter effects, Q1 typically marks low season for Veidekke. We are below consensus on Q1e EBIT, forecasting a low-season nominal loss. We expect reduced long-term civil engineering spending in Norway following publication of the new National Transport Plan (NTP), but with a weaker NOK, our 2024–2026e EPS are broadly unchanged. We have raised our target price to NOK120 (115) to reflect higher peer multiples, but reiterate our HOLD.

Reflections on dayrates ahead

As per our most recent sector updates, we believe deepwater datapoints could surprise on the upside in the comings months, potentially breaking the USD500k barrier after being rangebound at USD450k–490k for c12 months. Still, dayrate bifurcation among deepwater rigs is still there, but we are encouraged by the disciplined behaviour for tier-1 rigs. We see similar trends for harsh semis. Within the jackup segment, bifurcation between local and international contractors could be more pronounced as...

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Cycle duration narrative intact with dayrate risk skewed to the upside

As sell-side consensus awareness of 2024 challenges now (finally) looks to be properly understood, we see all capital markets stakeholders being ready to focus on the (in our view) attractive 2026e valuation of the offshore drillers. In the coming months, we expect to see further evidence of cycle duration through long-term tenders and awards. For high-spec deepwater rigs, we also see the opportunity to push dayrates higher, potentially breaking the USD500k barrier after being rangebound at USD4...

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Aramco rollercoaster

For the offshore drillers, the capital markets’ interpretation of Aramco-related news over the past few days appears to be mirroring the rollercoaster on the offshore planned amusement park in Saudi Arabia, ‘The Rig’. In this note, we summarise the recent Aramco commentary and events, along with our perspective. From a ‘direct impact’ viewpoint, it is key to understand what companies may face suspensions and/or see rigs released. For an ‘indirect impact’ perspective (for the international jackup...