While investments in oil and gas are under discussion at the climate summit in Glasgow, SBM Offshore is filling its order book imperturbably. The reality is that worldwide demand for fossil fuels is undiminished. The oil price doubled compared to a year earlier: a barrel of Brent again costs around 80 dollars (69 euros).
SBM Offshore, a company originally from Schiedam, makes installations for the production and storage of oil and gas. A record amount of project funding ($1.6 billion) was recently raised for a floating drilling rig in Brazil. The contract for this will run for no less than 23 years from the commissioning of the vessel, which is expected in 2022.
Analysts are positive about the SBM share, with price targets of up to 25 euros per share. Despite this, the share price continues to fluctuate around 14 euros. “The market does not want to, investors are not enthusiastic,” says Quirijn Mulder, analyst at ING. “Look, for example, at a party like ABP, which is now exiting the fossil market as an investor.”
Analyst Henk Veerman, van Kempen, also notices this threshold with his customers. “An analyst looks at the intrinsic value of the company, but some of the investors are now saying ‘I can only invest a small part of my portfolio in oil and gas’.”
So the intrinsic value of SBM is actually very good, say both analysts. Demand for the ships that SBM Offshore builds remains high, for example in Latin America. SBM’s so-called FPSOs are floating storage and production platforms that can be used to drill for oil and gas in the sea. Companies can buy or lease these ships – the latter often for periods of 20 to 30 years. SBM’s customers include giants such as Petrobras and ExxonMobil.
Due to the large portfolio of long-term contracts for the lease of ships, SBM Offshore has a very constant and predictable cash flow. “That backlog, the order book, for example, was worth $30 billion in the first half of 2021, of which $25 billion in leases,” says Veerman. So that is money that will flow to the company in the future; the contracts have been concluded, the ships are already there. “Even if the oil price collapses again, there is no immediate risk for SBM that the money will not come in,” says Mulder.
Due to the predictability, quarterly results, due next Thursday, are not that exciting, both analysts say. What is more interesting is what the company may say about the diversification that has been used.
Because of course it does not escape SBM Offshore that the fossil industry is coming under increasing pressure. That is why it has also stepped into sustainable energy. For example, SBM developed a wave energy converter, a technique for converting kinetic energy of waves into electricity. In addition, floating wind solutions a pilot that SBM recently started: floating wind farms at sea, at sea depths of more than 50 metres.
Boarding in renewables is a smart move, say the analysts. “Although I do wonder how competitive SBM can be in that market,” says Mulder. “Of course they know a lot about offshore technology, but this is a market with other customers, such as electricity companies and companies that focus on the production of wind turbines. The competition is huge.” Moreover, the multi-billion dollar business that SBM now has cannot be replaced overnight with sustainable projects, says Mulder. SBM Offshore wants the sustainable branch to account for at least a quarter of the turnover by 2030.
#SBM #Offshore #order #book #full #fossil #revenues