Valuation of Solstad Offshore ASA

Abstract

Solstad Offshore is a strong Norwegian Offshore Supply player with operations in all the major regions. The company provides exposure to the high-end PSV, AHTS and CSV segment - with a total fleet of 47 vessels. The major driver for SOFF`s revenues is the global E&P spending. Petroleum companies’ investment is driven by the level of the oil price. The overall demand for OSVs is positively affected by number of offshore rigs, platforms and subsea wells. The recent plunge in the oil price has created a challenging market for the OSVs companies, with lower demand for OSV vessels. This together with the high supply growth the recent years has resulted in an oversupply of OSV vessels. Hence, lower dayrates and utilization rates. Therefore the competition among established firm is extremely high, and the future market conditions can be categorized as the "Survival of the fittest". SOFF`s ROIC has increased since 2011, but still lower than WACC. Going forward we expect the future ROIC to decrease on short-term, but will see rising levels in 2017- Based on our estimated value we see SOFF as a potential investment for marginal investors. This BUY/HOLD recommendation is supported by the multiples, and SOFF arguably has an upside potential of 12, 07%.