CGG - Q3 20 results confirm stabilization of the sector
All,
CGG’s Q3 20 results came out stronger than we expected, with USD199m of revenues vs our USD175m in our model, and USD80m of adjusted EBITDA vs the USD46m in our model (adjusted for USD13m of our projected restructuring costs). The seismic sector bottomed out in Q2 20, earlier than we expected, and is already seeing new orders and activity coming back. E&P producers have started to resume their activities in their main core areas, after the initial freeze of Q2 20.
This recovery in the sector, which had already been flagged by PGS in its own Q3 20 results report, is seen by management as continuing in Q4 20. On the other side, management was faster and more aggressive than anticipated, with a USD28m restructuring cash outflow already in Q3 20, mainly related to severance payments.
CGG’s cash balance at the end of Q3 20 was in line with what we projected. We estimate that the cash impact of the restructuring charges was a major driver of the EBITDA differential vs our expectation.
We currently have a long position on both the First Lien USD notes and the Second Lien USD notes. Our underlying investment thesis remains unchanged. CGG retains a strong liquidity position to see it through the rough patch of 2020/2021, and the underlying value of the assets, including the data library, which has been highlighted by the recent bids on PGS’s library, should continue to support the company. At the same time, the USD80m of cash outflows from discontinued operations in 2020 are contractually scheduled to go away in 2021, thanks to a very timely exit of the marine acquisition segment in 2019. This should allow CGG to break even at lower revenue levels.
We will update our views over the next few days, after taking into account the new Q3 20 numbers and the results call.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano
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E: jtorii@sarria.co.uk
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