After a solid 4Q22, better-than-expected FY23 guidance and robust medium-term outlook, albeit conservative in our view, SPM''s recovery story and shift to more attractive end markets look well underpinned. We upgrade to Outperform on the recent macro-driven pullback with EUR1.9 TP.
After a solid start to the recovery, there is more to come
Having achieved 35% of the four-year intake target in Offshore EandC in 2022 alone, SPM''s revenue mix is set to shift at an accelerated pace toward a higher-margin revenue mix. Despite elevated intake last year, the targeted level of intake from Offshore EandC (ex-wind) is unchanged and comprises 50% of total additions. With the near-term pipeline of opportunities in Offshore increasing a further 20% q/q as clients look to reserve installation capacity amidst a tightening market, we think there is room for further pricing improvement in both Offshore EandC and Drilling.
Learning the hard way, but learning nonetheless
One of the few positives to emerge in the wake of the major backlog review is a greater focus on risk management within the organisation, with the creation of the General Manager function headed by CEO Puliti enabling greater control of financial planning and operational controls. With strict new bidding governance rules in place, we are optimistic that a greater share of profits from the upturn will be converted to cash further down the road.
Changes to estimates, TP and rating: Upgrade to Outperform, TP raised to EUR1.9
We incorporate 2023 guidance, management''s updated outlook and leased additions to the fleet in Offshore EandC and Drilling. Despite robust share price performance in the past six months, we see the recent pullback in the shares as an attractive entry opportunity with the shares trading on 4.0x ''24 EV/EBITDA and offering c25% FCF yield in 2025 on our estimates. We upgrade to Outperform (from =) and raise our TP to EUR1.9 from EUR1.45 as we upgrade our EBITDA forecast by 16% in FY23 and...
