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On Monday, CFRA analyst Alex Goh downgraded Subsea 7 SA (SUBC:NO) (OTC:SUBCY) stock rating from Hold to Sell, maintaining a price target of NOK 149.00. The decision comes as Subsea 7 faces the need to secure additional new contracts to meet consensus estimates, with current backlog recognition only accounting for 55%-58% of the remaining three quarters of management’s revenue guidance.
Goh’s analysis indicates that Subsea 7 will require new contracts of up to USD 0.8 billion per quarter to align with current consensus estimates. This assessment is made without changes to the 2025-2026 EPS forecasts, which remain the same. The price target is based on a 2025 EV/EBITDA multiple of 3.6x for the combined entity that would result from the proposed merger with Saipem (BIT:SPMI). This valuation is one standard deviation below Saipem’s two-year EV/EBITDA average of 4.5x before the merger announcement.
The correlation between Subsea 7’s share price and Brent crude oil prices has significantly improved to 85% over the past year, following a period of decoupling from 2021 to 2024. During that time, oil and gas majors increased their investments in renewable energy and net-zero initiatives. However, the analyst expressed concerns over the lower crude oil price prospects and the impact of one-off costs totaling USD 270 million from the proposed merger with Saipem, which also carries execution risks.
The proposed merger with Saipem presents potential challenges for Subsea 7, including execution risks and significant one-off costs. These factors have influenced CFRA’s decision to downgrade the company’s stock rating to Sell. Subsea 7’s share price has become more closely tied to Brent prices, which could affect the stock’s performance given the current crude oil market outlook.
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