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On Wednesday, Berenberg reaffirmed its Buy rating on Subsea 7 (OTC:SUBCY) SA (SUBC:NO) (OTC: SUBCY) stock, maintaining the price target of NOK245.00. The firm highlighted Subsea 7's strong position to benefit from the sustained increase in offshore capital expenditure and its significant backlog.
The company's key vessels are reportedly maintaining high utilization rates, which, along with anticipated stronger pricing in the backlog, is expected to support the management's forecast of growing EBITDA margins to 18-20% next year and above 20% from 2026.
The firm also emphasized Subsea 7's financial strategy, noting the company's plan to distribute over USD1 billion to shareholders by 2027. This reflects confidence in the company's free cash flow generation and suggests that significant investments in new-build vessels are not anticipated in the medium term. Berenberg's outlook is based on the company's operational performance and financial planning.
In terms of quarterly performance, the firm anticipates a solid third quarter for Subsea 7, despite expecting a quarter-over-quarter reduction in backlog. This operational forecast supports the firm's continued recommendation of Subsea 7 as a top pick within the oilfield service sector.
The guidance provided by Subsea 7's management on EBITDA margins and the substantial planned shareholder distributions underline the company's financial health and strategic direction. Berenberg's unchanged price target of NOK245.00 reflects the firm's ongoing confidence in Subsea 7's market position and future performance.
In other recent news, Subsea 7 has been in the limelight with various analyst adjustments and robust financial results. Jefferies has lowered Subsea 7's stock target due to concerns over backlog, despite the company's strong performance in the second quarter and anticipation of a slight increase in the Group margin. The firm also noted potential influences on the free cash flow, particularly the acquisition of the vessel Seven Merlin.
On the other hand, Bernstein SocGen Group downgraded Subsea 7 from Outperform to Market Perform, primarily based on valuation grounds, but acknowledged the company's potential for strong free cash flow generation in the coming years.
Subsea 7 has reported a significant increase in its financial performance for the second quarter of 2024, boasting a record high in order intake and backlog, amounting to $4 billion in new awards. The firm's adjusted EBITDA surged by 80% year-over-year to $292 million, and net income rose to $63 million. The company forecasts full-year revenue to be between $6.5 billion and $6.8 billion, with adjusted EBITDA between $1 billion and $1.05 billion.
These are the recent developments for Subsea 7, as the company continues to navigate the market with its strategic decisions and strong performance in the renewables sector.
InvestingPro Insights
Subsea 7's financial metrics and market performance align well with Berenberg's bullish outlook. According to InvestingPro data, the company's revenue growth stands at 16.21% over the last twelve months as of Q2 2024, with an impressive EBITDA growth of 51.42% over the same period. This robust growth supports management's forecast of expanding EBITDA margins.
InvestingPro Tips highlight that Subsea 7 is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of just 0.17. This suggests the stock may be undervalued considering its growth prospects. Additionally, the company's strong return over the last five years, as noted by another InvestingPro Tip, corroborates Berenberg's positive stance on the stock.
The company's dividend yield of 1.73% and its plan to distribute over $1 billion to shareholders by 2027 are consistent with InvestingPro's observation that Subsea 7 operates with a moderate level of debt, allowing for shareholder-friendly policies.
For investors seeking a deeper understanding of Subsea 7's potential, InvestingPro offers 9 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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