Ezra: The weak oil price environment is creating challenges for the subsea industry, with the likes of subdued activity for tendering activity of new awards, as oil companies delay final investment decisions and the timing of potential projects to be awarded in 2015 remains highly uncertain.
Industry participants Saipem and Technip highlighted that the sharp slowdown in upstream investments announced by oil companies is likely to impact the negotiations on new contracts, both in terms of timing and rates, as well as increasing pressure on supply chains to suggest a prolonged, harsh slowdown in many parts of the industry.
On the challenging conditions, Deutsche cited that Ezra is expected to come under pressure on subsea new orders for FY15, below its US$1b in FY14, in light of aggressive capital discipline from oil companies.
A risk for Ezra is its high gearing (>1x) which may call in question the group’s funding needs. However, as construction has completed for its major vessel The Lewek Constellation (now undergoing commissioning), capex requirements should subsequently decline and management expects gearing to trend lower.
In its Offshore Support business, Ezra is seeing weakness in shallow water Platform Support Vessels and Deutsche believes it should see downside pressure on charter rates.
House maintains its Hold rating with TP of $0.52.
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