CGG - Keep looking up.
All,
Please find our updated analysis here.
The future for CGG is looking up, but short-term volatility means plans are not yet turning to orders and cash for CGG. The fall in the oil price since May has crimped some of the more ambitious drilling plans, but the need for energy security (aka replacing Russian oil) will underpin the cycle turning in 2023. We have slightly revised our 2022 expectations downward but are maintaining our forecasts for 2023.
A Poor quarter for Sensing and Monitoring, but the environment is strong:
- Economic turmoil has pushed the spending on Equipment out into 2023.
- The ban on exports to Russia will cost around USD50m in Revenue (USD12m in EBITDAs) in 2022.
- We continue to expect to believe that the industry needs to invest more after years of neglect.
- The ban on Russian oil and the drive for energy security will release downward pressure on new exploration in the medium term.
We have pared our Q4 expectations but left the future growth unchanged. The impact is a small reduction in our overall expectations.
Liquidity is lower but still adequate:
- Including an undrawn RCF (USD100M) our model still has liquidity over GBP350m at December 22.
- This is around USD150m lower than our original model, mainly due to:
- USD80m lower EBITDAs
- USD65m worse figure for WC (delayed equipment deliveries)
Investment Considerations:
- We have not yet taken a position in the SSNs, but with both the $ and € priced around 89% and yielding 12.8% and 11.3%. We continue to see an upside in the notes from a more robust operating environment. The recent fall in oil prices has crimped investment demand, however, the demand created by the need to replace Russian oil means that energy security will continue to support E&P investment as an instrument of government policy. The CCC+ rating from S&P constrains some investors and reduces the pool of buyers, which will cap the speed of any rise.
I look forward to discussing this with you all soon
Regards,
Aengus
T: +44 203 744 7055
www.sarria.co.uk