Firm Valuation of Petroleum Geo-Services ASA

Abstract

PGS riding out the storm Given the tough market conditions expected in 2015, PGS revenues are forecasted to decline by ~15%. Declining day rates and lower expected utilization sees EBITDA margin decreasing to ~44%. Despite this, PGS has a strong balance sheet, with an attractive debt profile which puts them in a position to navigate through the current market environment. The long-term outlook is however positive as profitability is projected to recover with EBITDA margins bouncing back to ~51%. The delivery of the two new Ramform vessels, combined with increasing demand and higher day rates sees revenues to reach record heights in 2017. Cost and technology leadership combined with a highly advanced fleet makes PGS the preferred seismic company. Oil price bottomed out - set to recover The oil price plummeted in the second half of 2014 reaching $49/bbl. Consequently the petroleum companies cut E&P spending, with the seismic industry being hit hard. We expect the oil price to recover to $75/bbl in 2017 and $81/bbl in the long term, and E&P spending to increase accordingly. Valuation and recommendation Based on our company and market analysis we recommend a BUY with a target price of NOK 58.78, an upside of 33%.