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The FY20 results came out in line with the preliminary released with the announcement of the financial restructuring A positive free cash flow in Q4 (€112m) with efforts on WCR will be welcomed The outlook remains cautious and uninspiring with results more or less flat No drama though, and the financial restructuring is under way We will fine-tune our estimates to the downside, and stay away from the stock until the financial restructuring is fully accepted and implemented.
Vallourec Vallourec SA
The details of the ongoing plan to restructure the group’s balance sheet were made public The dilution will be masssive, as expected We will adjust our numbers accordingly Expect our target price to fall
With conference season in full swing and quarter end results coming to a close, we update our question banks for the fourteen oil services companies under coverage. Key takeaway from 3Q20: visibility into 2021 still low, but things seem to have stabilised After the ''hard landing'' earlier in the year, with customers curtailing their budgets and COVID-19 affecting their operations, 3Q20 was a period of relative stability for the sector. Cost savings plans are now place, protocols around the pandemic are established and discussions around the pace of execution on ongoing projects are completed. Whilst the recent vaccine announcement springs hope, visibility into next year''s project sanctioning and activity recovery remains relatively low. Questions for 2021: pricing, activity, consolidation and portfolio actions With the industry wide reset now in full swing, near-term activity levels, pricing pressure and consolidation are all important considerations. On the short-cycle side, both in NAM and internationally, we are looking for signs of activity recovery and rig count expansion. Long-cycle activity should remain subdued, with the industry talking to 150 trees in 2021, and indications of material project sanctioning picking up only in 2022. Meanwhile, portfolio restructuring actions should continue, ranging from disposal to spin-offs and potentially minority listings. Energy Transition an ever pressing issue The Energy Transition debate is set to further intensity. As we wrote in our re-initiation report, the ''future is green if you can seize it '', with companies in our coverage having exposure (in various degrees) to Solar, Wind (fixed and floating), Biofuels, Wave Energy, Hydrogen, Geothermal and CCS. An increasing number of questions arise around potential returns, future materiality and importantly the best way to monetize these businesses for shareholders, particularly as values for ''Green'' and ''Black'' continue to diverge.
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Q3 results were decent Cost-cutting, the higher contribution of the iron-ore mine and some mix impact have all helped The negotiations on the financial restructuring (debt-to-equity swap) are only starting Steer clear of the stock before the conditions of the restructuring are known, with a potential huge dilution
The group’s results continue to suffer from low oil prices The pandemic has not helped and the group is under pressure The issue of its refinancing is getting more worrying by the day We are still very sceptical about the group’s communication
Vallourec
Q1 20 revenues were in line but the outlook is quite uncertain with the combination of the pandemic and very low oil prices (the former accelerating the latter). Cash is needed to avoid breaching covenants given the negative free cash flow we expect for the full year, which explains why the group intends to proceed with the €800m capital increase as soon as market conditions allow. We expect the share price to remain volatile.
FY19 showed a degree of improvement but from a low FY18 basis A massive capital increase (€800m planned in Q2) as we long expected (contrary to management, as usual caught by surprise) The market development, seen as positive in EAMEA, could be more favourable in FY20 It remains that management’s credibility is hurt once again The retirement of Mr Crouzet could, hopefully, give room for more transparency/ less self-satisfaction (we may be a bit optimistic here).
Q3 19 was slightly under consensus but no drama North America (shale) and Brazil have slowed down, with EAMEA improving. The recovery is underway, but quite slow. The group refuses to indicate the (huge positive) impact of iron-ore sales on results. Iron-ore outout to raise to c.8Mt by 2022 (vs 6Mt today). We will slightly reduce forecasts and target price. We still do not like the (leaving) CEO’s communication.
- H1 19 showed an undeniable improvement in profitability - Net debt has been contained so far, making a capital increase less likely - The balance sheet still remains stretched and any market set-back would reinitiate speculations on yet a new issue - We will revise our valuation upwards, but do not underestimate the positive impact of iron-ore on the group’s numbers, which management refuses to detail (!)
- Q1 19 results were decent on the P&L front - Volumes, prices and savings have helped - However, cash consumption thus net debt still a worry - Management reaffirmed no issue to take place in FY19 - We are less confident and any market downturn would leave no other choice - In short: not bad but still some way to go
- Q4 shows a rebound in volumes (particularly in EAMEA). - EBITDA substantially better in Q4, as expected and even better. - FCF positive in Q4 (first time since… 2015). - Outlook quite confident (to be slightly mitigated by our view on top management). - Management reasserts they can live without a share issue in FY19. - No big change to our numbers. We will reconsider after Q1/H1 if we sill believe in a capital increase.
There is no real fact to trigger this Latest, other than the very sharp correction of the share price in the past few days and our thoughts on a potential capital increase.
Revenues reached €961m (-0.3% yoy and +5% at CER), EBITDA €43m (vs €9m), EBIT €-29m (vs €-88m) and net income €-92m (vs €-119m). Net debt at the end of Q3 18 reached €2,097m vs €1,934m in H1 €1,783m in Q1 and €1,542m at year-end 2017. Over 9 months, revenues were up 4.7% to €2,805m, EBITDA up from €-9m to €61m and operating profit up from €-277m to €-234m. The group had targeted a positive outlook for H2 with EBITDA higher than in H1, and now indicates Q4 EBITDA should be above that of Q3 (€43m). Demand should be softer in the US (after inventory build-up anticipating section 232) and stable in Brazil, while activities should benefit from higher volumes and prices elsewhere.
Despite the recovery in the US and the “transformation plan”, forex and higher input costs make the H1 18 P&L very similar to last year’s. Although demand is well oriented in North America and should improve in EAMEA, investors are required to be patient before margins become healthy again.
Vallourec released Q1 18 results. Revenues reached €862m (+10.1% and +22.1% at CER, EBITDA €-5m (vs €-21m), EBIT €-130m (vs €-111m) and net income €-170m (vs €-126m). Net debt at the end of Q1 18 reached €1,783m vs €1,542m at year-end 2017 (or +€241m). The group confirms its “positive outlook for the year with EBITDA in the second half of 2018 targeted to be significantly higher than in the first half”. Altogether, the group indicates EBITDA in the current year should improve over FY17’s.
FY17 inline and rather weak still. The outlook is not detailed and still uninspiring, with Vallourec’s exposure to the US “quite small”. The 2020 targets definitely look out of reach. We will most likely cut our forecasts and target.
Vallourec’s Q3 17 results: sales reached €964m (+39.1%, +29% comparable), EBITDA €9m (vs €-52m), EBIT €-88m vs €-143m and net income €-119m (vs €-160m). Net debt at the end of Q3 stood at €1,645m (vs €1,287m a year ago, €1,533m in Q1 17 and €1,613m in H1), with free cash flow in Q3 reaching €-72m. Over 9 months, sales reached €2,680m (+26%, +11.1% comparable), EBITDA €-9m (vs €-156m), EBIT €-277m vs € -561m and net income €-396m (vs €-612m) and free cash flow of €-397m. In H1, the group had upgraded its guidance for FY17, targeting a €125-175m improvement in EBITDA (vs €50-100m previously). This would have implied an EBITDA of c. €-95m/€-45m for FY17. After Q3, the group re-upgraded its target for FY17, now targeting an EBITDA of €-30m/€-10m.
Vallourec’s H1 17 results: sales reached €1,716m (+19.7%), EBITDA €-18m (vs €-104m), EBIT €-189m (vs €-418m) and net income €-254m (vs €-415m). Net debt at the end of H1 stood at €1,613m (vs €1,287m a year ago and €1,533m in Q1 17), and free cash flow in H1 reaching €-325m. The group upgraded its guidance for FY17, now targeting a €125-175m improvement in EBITDA (vs €50-100m previously). This would imply an EBITDA of c. €-95m/€-45m for FY17.
Revenues in Q1 17 reached €783m (+16.7% and -1.5% comparable at CER, EBITDA €-21m (vs €-72m), EBIT €-111m (vs €-290m) and net income €-126m (vs €-284m). Net debt at the end of Q1 17 reached €1,533m vs €1,287m at year-end 2016. The group indicated that the improvement in EBITDA for FY17 should be “in the upper part” of a €50-100m range, thus suggesting an EBITDA level of c. €-120m.
Vallourec released FY16 results. Revenues reached €2,965m (-22%), EBITDA €-219m (vs €-77m), EBIT €-749m (vs €-838m) and net results €-758m (€-865m). Free cash flow was €-395m (and €-574m at constant WCR). Net debt at the end of FY16 amounted to €1.3bn. No dividend will be proposed. Looking forward, the group anticipates EBITDA to improve by…€50-100m in FY17.
Vallourec released Q3 16 results. Revenues were down 20.5% to €693m, EBITDA €-52m (vs €-66m in Q3 15), operating income €-143m (vs €-165m) and net result €-160m (vs €-164m). Over 9 months, revenues were down 27.7% to €2,127m, EBITDA €-156m (vs €0m), operating income €-561m (vs €-393m) and net income €-575m vs €-439m. Net debt at the end of Q3 was €1,020m (€944m in H1). The group re-iterated its FY guidance (EBITDA lower than in FY15, negative free cash flow of c. €600m and net debt below €1.5bn after the Tianda acquisition and full consolidation of VSB).
Vallourec released H1 16 results. Revenues were down 30.7% to €1,434m (-27.3% at CER), EBITDA was €-104m vs €66m in H1 15, operating income €-418m vs €-228m and net income (group share) €-415m vs €-275m. Free cash flow was €-317m in H1 16, leading to a decrease in net debt of €575m to €944m after the positive impact of the capital increase (€959m).
Revenues reached €671m (-36.2% yoy), EBITDA €-72m (vs €53m), operating income €-290m (vs €-35m) and net income €-284m. Free cash flow was a negative €239m. Net debt at the end of Q1 16 amounted to €1,789m. In terms of outlook, the group expects « better results in Q2 due to the concentration of deliveries in the quarter » but warns H2 will be difficult in the absence of a recovery in E&P capex.
Vallourec released FY15 numbers. Revenues were down 33.3% to €3,803m, EBITDA amounted to €-77m (vs €855m), operating income reached €-838m (vs €-661m), and net income €-865m (vs -924m). Free cash flow reached €135m (on lower WCR) and net debt €1,519m (vs €1,547m a year before). No dividend will be proposed. The outlook for FY16 calls for a negative free cash flow of €-600m, a capex of €200m and a full-year EBITDA lower than in FY15, while net debt is unlikely to be over €1.5bn (after the capital increase, the Tianda acquisition in China and the VSB-VBR merger in Brazil). Looking to the longer term, the group reiterates its target announced on 1 February of an EBITDA of €1.2-14bn and a normalised FCF of €500-600m by...2020.
Vallourec announced a massive rights issue (c.€1bn) which will take the form of a capital increase and a reserved convertible bond issue (c. €510m and €490m respectively). The convertible bond issue is reserved to Nippon Steel and BPI France at a price of €11 for a €365m tranche and at the price of the capital increase for the remaining €125m tranche, while bonds will be converted into shares at the latest 2 years after issuance. The bond issue is subordinated to the success of the capital increase. As a result, the holdings of Nippon Steel and BPI France in Vallourec will ultimately rise by c.15%, bringing their respective stakes to 16.5% and 22.5%. The operation will take place in Q2 16, after sahreholders’approval and depending on market conditions.
Vallourec released its 9 months figures. Revenues amounted to €2,942m (-27.1%), including -38.1% in Q3, EBITDA was €0 vs €649m last year, operating income €-393m vs €345m in 2014 and, lastly, the net result reached €-439m vs €169m. EBITDA in Q3 was €-66m vs €175m in Q3 14 and €13m in Q2 15. Free cash flow remained positive in Q3 (€32m) on the back on a very sharp decrease in WCR (€168m). At the end of day, net debt in Q3 was €1,633m vs €1,670m in H1 and €1,547m at year-end 2014.
After the Swiss "trader-miner" Glencore announced a US$2.5bn capital increase, there is little doubt that the market will/could make the short-cut of anticipating the same for Vallourec.
Vallourec released H1 15 results. Revenues fell 23.1% to €2,070m, EBITDA reached €66m (vs €444m a year ago), operating income was €-228m (vs €+265m), and net income €-275m vs €+144m in H1 14. Free cash flow was €+3m (vs €+37m). Net debt stood at €1,670m vs €1,547m at year-end 2014 and €1,603 in Q1 15, after the dividend payment. The group however aims to deliver a positive free cash flow for FY15.
