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Unlike peers that have enjoyed the upside momentum in the upstream investment cycle, CGG’s revenue growth stalled in the Q3, negatively affecting the company’s liquidity and increasing the leverage ratio whereas companies elsewhere in the sector made impressive progress on deleveraging. While the downward guidance revision is discouraging, the FY 2023 is expected to improve as projects have been shifted into next year
Companies: CGG (CGG:EPA)CGG (CGG:PAR)
Good results with gains in DDE, thanks to very strong after sales ($88m vs $20m in Q2-21) and explaining the profitability, while Sensing & Monitoring was down 4% yoy at $46m. After sales were driven by transfer fees and sales in Latin America. All in all, the release confirmed the management’s positive outlook, seeing a favourable multi-year upcycle in capex spending.
Companies: CGG (CGG:PAR)CGG (0RI9:LON)
The Q1 results were below consensus with segment revenue of $153m, showing a 24% decline yoy, particularly due to low activity in Sensing and Monitoring, with revenue down 70% yoy. However, note that the 2022 outlook has been maintained. This is supported by the increasing level of commercial activity and management is expecting an acceleration in client decision-making during H2.
Positive results, confirming the trading update published in January. The recovery is a progressive one but the guidance for FY22 is above our estimates (EBITDA guided at c. $480m vs $450m in our estimates). Capital discipline remains in the sector but the group seems confident for FY22 as it is increasing its spending (Multi-Client spending at $200m vs $165m in FY21).
Positive release with EBITDA rebounding after the weak Q2. Management sees a solid Q4 in all businesses and therefore confirms the guidance for FY21. Management said that International Oil Companies are spending “well below” their allocated budgets this year. While some of this will ultimately go to the shareholders, we believe this, together with a strong oil price, supports a good Q4/H1 22.
Revenues were down 26% qoq with a pick-up in GGR sales (+10% qoq), more than offset by a decline in Equipment (-58% qoq). As International Oil Companies maintain a strong capital discipline, the outlook is revised with FY21 revenue to be flat yoy (vs low single-digit growth) and EBITDA at around $310m. This compares to an EBITDA of $78m for H1, and implies a strong ramp-up in H2.
Management hinted at a soft Q1 and this proved to be right. Segment revenues are down 21% yoy and EBITDA by 71% as equipment take a large share of the mix (53% vs 28% in Q1 20) with very low GGR revenues. At least CGG managed its working capital and spending to generate $28m of cash.
Management is optimistic about H2 as it has seen commercial activity increasing since March on the back of higher oil.
EBITDA is up 48% qoq, slightly above consensus, but cash shows another working capital build. Liquidity is down 35% yoy, which might cause concern.
The outlook guides for a small revenue increase, and stable EBITDA on a different sales mix. The environment remains challenging and CGG is cutting investments to focus on cash generation. No surprise, as there will not be a dramatic increase in spending this year, although a higher oil helps visibility.
A mixed bag with revenues down 48% yoy but stable qoq, while the adjusted EBITDA improve by 18% qoq. However, the segment free cash flow deteriorated ($-59m), with a working capital build ($38m). Multi-client after-sales picked up, partly offset by lower pre-funding. Meanwhile, the activity weakened in geoscience and equipment. Cost reductions help the group in coping with this crisis, but the activity will need to rebound soon, as liquidity is down $159m since Q1.
Revenues and segment EBITDA were in line with consensus, but non-recurring charges amounted to $94m in the quarter mainly on goodwill and asset impairment, leading to a net loss of $147m.
Net cash flow was at $-77m (-$60m for H1 20). The guidance remains vague, which unfortunately will not help in understanding when the activity will restart.
Most of the positive news from this release was already announced in the trading update. On the outlook, as the 25-30% cut in exploration investments will undoubtedly impact CGG’s turnover (particularly in multi-client after sales), the group focuses on delivering its backlog and reducing its own spending. Lastly, during the conference call, management said it has not received any cancellation of committed orders, which somehow validates the $256m backlog.
During the call, management discussed the possible reintroduction of the dividend in 2021. In our view, this reflects CGG’s remarkable turnover since the announcement of the strategic plan. Indeed, in 2019, the cash generation and operational performance have been improving, with good progress towards the 2021 targets. Yet, the lower oil price is weighing on the outlook. Even in an asset-light form, CGG will not be immune to lower spending from E&P companies, a likely outcome with oil at $50.
The release follows a positive trading update, which saw an increase in guidance. The quarter saw strong Multi-Client sales, even excluding exceptional one-offs and accelerated sales. Furthermore, the group is making good progress in its strategic partnership with Shearwater and is in advanced discussions for the sale of the multi-physics business.
The good results were toned down by management lacking visibility in H2 on the demand stemming from seismic “megacrews” that had supported growth in H1. The quarter remains positive with cash generation in continued operations and the strategic partnership signed in marine acquisition.
Good results from CGG, given the traditionally low seasonal quarter. Revenue is up 20% yoy at $282m, due to a 93% yoy increase in Land Equipment sales ($85m).
An important feature of this release is the strong operating cash flow before working capital movement at $100m (vs. $-18m in Q1 18), confirming the good performance since the last quarter and putting CGG on the right track to reach its 2019 guidance (segment FCF targeted at $175-200m).
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Hannam & Partners
Dish of the day
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What’s cooking in the IPO kitchen?**
Kistos Holdings plc, intends to join AIM. The Company was incorporated to act as a new holding company for the group companies 0f Kistos plc (KIST), a holding company with the objective of creating value for its investors through the acquisition and management of companies or businesses in the energy sector. Anticipated Market Cap £327m. Expected 22 Dec 2022.
AT85 Global Mid-Market Infrastr
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As part of the continued deregulation of the power market in South Africa, Chariot has formed a new JV through a 25% interest in a new South Africa electricity trading company, Etana Energy, which has been granted an electricity trading licence by the National Energy Regulator of South Africa (NERSA). As one of the largest energy markets in Africa, the Etana platform will provide Chariot with the opportunity to decarbonise the South African power sector via the supply of renewable power to both
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Dish of the day
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