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24 Apr 2023
1Q23: Nothing but progress

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1Q23: Nothing but progress
- Published:
24 Apr 2023 -
Author:
Thomson Daniel DT -
Pages:
10 -
Saipem''s 1Q23 results were nothing but progress, with margins and cash flow better than expected. Incremental pricing gains on new work and gradual progress on execution of legacy backlog review projects should lead to margin uplift and enhanced cash flow over time. Outperform.
What did we learn from the quarter?
With two key enabler vessels returning from scheduled maintenance, Asset Based Services (ABS) revenue should increase sequentially at EBITDA margins approaching 10% (1Q23:9.8%). De-risking of the Offshore Wind portfolio continues, with Seagreen complete and the remaining backlog review projects on schedule. Energy Carriers margins will remain constrained through the year, with 40% of 1Q23 revenues from backlog review projects. In Offshore Drilling, dayrates are expected to trend upward, with margins likely to remain around the 1Q23 levels (c38%) and revenues to increase as two jack-up rigs and a new drillship join the fleet later in the year.
How does it change our investment view?
We are increasingly optimistic on the outlook for margins in the ABS segment and see no reason why profitability cannot return to (or exceed) 2016-19 levels of c13-16% from 2025. While we remain cautious on margins in the Energy Carriers segment, a restart of activities on Mozambique LNG in 3Q23, commencing on the Perdaman urea plant project in Australia and completion of the Thai Oil contract as planned should support a gradual increase in margins with improved mix. SPM''s commentary on Offshore Drilling implies upgrades of cEUR40-50m to consensus EBITDA for 2023 in our view, considering higher revenues expected through 2Q-4Q23 at similar margin levels.
Earnings and target price changes
We increase our EBITDA forecasts for 2023-25 by 3% respectively, reflecting a more optimistic outlook for margins in ABS and Offshore Drilling. As a result, we increase our TP to EUR2.0/sh (from EUR1.9/sh) and remain Outperform.