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Investing.com -- Subsea 7 (OTC:SUBCY) and Saipem (BIT:SPMI) were downgraded to “sector perform” from “outperform” by RBC Capital Markets in a note dated Friday, citing delayed merger benefits and macroeconomic caution, despite record-high trading levels and robust backlogs.
RBC raised Subsea 7’s price target to NOK230 from NOK225 but lowered Saipem’s to €2.75 from €3.40, aligning both with the July merger deal terms and projected FY26 EV/EBITDA multiples of 4x and 3.3x, respectively.
The downgrade reflects concerns that further upside is unlikely to be priced in until the merger, set for completion in 2H26, nears resolution.
Subsea 7 is trading near all-time highs, while Saipem is at its highest level since its 2022 rights issue.
Both companies have benefitted from the offshore upcycle that began in 2022, with book-to-bill ratios consistently above 1x and improved contract terms.
FY26 margins are forecast at 22% for Subsea 7 and 13% for Saipem, supported by vessel utilization and a backlog of €41.4 billion.
However, RBC said those margin gains are already priced into consensus estimates and unlikely to be revised higher before the deal closes.
Subsea 7 is trading at 4x FY26E EV/EBITDA; Saipem at 2.6x, both at the lower end of their cycle ranges.
Regulatory hurdles remain a key overhang. The merger is undergoing antitrust reviews, with Brazil expected to take 12–18 months. RBC expects approval without remedies but noted limited flexibility in the timeline.
Revenue from the combined Saipem7 entity is forecast at €22.9 billion for FY26, with €3.1 billion EBITDA, yielding a combined EV/EBITDA of 3.9x.
Cost synergies of €300 million are projected by FY28. Both companies have resumed shareholder returns, with Saipem to pay €0.17/share in 2025 and Subsea 7 to return NOK13/share and $650m in dividends and deal proceeds.
While RBC affirmed the merits of the merger, including enhanced vessel deployment and geographic coverage, it said near-term valuation upside is limited.
Offshore services stocks remain correlated with oil prices, which adds volatility despite low offshore breakeven costs.
Subsea 7 posted FY25 EBITDA guidance of $1.41 billion on $7.1 billion in revenue, with a 20% margin.
Saipem expects FY25 EBITDA of €1.61 billion on €15.2 billion in revenue, with an 11% margin. Both expect earnings to return to early-2010s levels.
The combined outlook remains positive, but RBC sees limited investor incentive until regulatory clarity improves and integration milestones are met.