Barclays sees stability in European energy services sector

Investing.com -- European energy service companies are stabilizing as they undergo restructuring and financial recalibration, as per Barclays (LON:BARC) analysts, in a note dated Monday. 

The brokerage maintains a positive stance on the sector, citing debt reduction, operational realignment, and improved cash flow as key factors supporting resilience.

Viridien has successfully transitioned to an asset-light model, reducing exposure to volatile seismic activities and focusing on data processing.

“With its US$1.1bn refinancing, a key risk around Viridien has been removed, giving a runway to 2030 for debt to come down sharply and arguably finalizing a restructuring exercise that has been ongoing for nearly a decade,” Barclays analysts said. 

This provides the company with long-term stability and positions it for sustained profitability.

Viridien is also improving its financial position through stronger cash flow generation. Analysts expect net cash flow of approximately $100 million in 2025—roughly 17% of its market capitalization.

“It (Viridien) is also generating cash, with the company expecting to have a net cashflow in the region of US$100mn in 2025, ca 17% of the market capitalisation,” Barclays noted.

Barclays suggests that Viridien’s valuation has considerable upside potential. A 13% discount rate—applied due to high debt—supports the bank’s equity valuation of €100 per share, a 54% increase. 

Analysts indicate that as debt declines, a lower discount rate in line with the sector could push the valuation toward €160 per share.

“With high gearing (ND:mkt cap of c.160%) any small changes to our DCF-based assessment make a material change to our equity valuation, which increases by 54% to EUR100/sh,” the analysts added.

Despite positive financial trends, Barclays remains measured in its outlook, acknowledging potential delays in investor confidence. 

“It will take time for investors to come back to the stock and with similar levels of upside potential in more liquid names, we see more attractive alternatives elsewhere,” analysts said.

To maintain balance within its recommendations, Barclays has downgraded SBM Offshore from “overweight” to “equal weight” and Maire from “equal weight” to “underweight.” 

“In order to maintain balance within our relative recommendation structure, we are also downgrading SBM Offshore to EW from OW and Maire to UW from EW with unchanged price targets, both on relative performance since the start of 2024 and relative upside potential,” analysts stated.

The broader European energy services sector remains stable, with companies prioritizing efficiency and financial discipline. 

Barclays’ continued positive stance underscores the importance of strategic debt management and operational adaptability for long-term growth.