Vallourec Q2 preview

All,cVallourec are due to release their numbers for Q2 and a more detailed H1 2019. They are normally released after the market closes at 4:30 UK time with call at 5:00 UK time.

Despite the likely step back from Q4 2018 margins, we expect continued y-o-y improvement in both terms of margin and actual EBITDA, with Q2 EBITDA of 73m easily surpassing 23m in Q2 2018. Leverage will remain elevated at 12.0x, and this is on the basis of a working capital inflow in Q2 (this assumption we were getting pushback from the Company).
But apart for Working Capital movements, the focus will be on two fronts - Have we seen and will we continue to see market growth outside the US. - The market is expecting and in turn we have modelled a decline in US pricing due to the observed decline in the number of oil rigs in operations. (See previous email)
In Summary, on the back of improved pricing in the oil & gas sector outside of the Americas over the last 6 months, EBITDA has been improving. But outlook is what is going to drive the credit. In essence, although a healthy EBITDA improvement for Q2 is welcomed, our focus on the outlook. We are specifically looking for the following- the immediate expectation of continued improvement in Europe and Middle East - the continued guidance towards improvement in Brazilian market in H2 2020- guidance on further development of the receding US markets.

Tomas