The first half of 2011 was “uninspiring” for the oil services industry, according to a research note on the sector from Deutsche Bank published today.
Nevertheless, the investment bank recommends AMEC (LON: AMEC), Aker Solutions (Oslo: AKSO) and Seadrill (Oslo: SDRL) as companies that are “well positioned within secular growth themes that possess attractive value relative to the sector”. Deutsche Bank also rates Saipem (Milan: SPM) as one of its top picks given its exposure to “several of our preferred themes and regions coupled with the company’s structural enhancement of its asset base that should drive a re-rating of its backlog and, in turn, marked returns and earnings growth”.
Deutsche Bank said that although the proportion of final investment decisions awarded across the sector since 2008 has increased, it appears to have stalled this year at around 25 percent with “the balance predominantly made up of sprint to market contracts (short lead projects) as well as front-end engineering work”.
The bank added: “In absolute terms, global activity in Greenfield investment year-to-date appears to significantly lag that of the last few years. If this trends persists in the near term we believe niche players such as Subsea 7 will be most at risk given its lack of diversification beyond the offshore Subsea industry.”
Deutsche Bank describes AMEC as being well diversified beyond oil and gas, with balance sheet strength and the potential to do additional returns-enhancing bolt-on deals. It rates the shares as a buy with a target price of 1370 pence.
Aker Solutions “now boasts top tier asset quality/differentiation versus European peers”, according to the bank. It has exposure to several of Deutsch Bank’s preferred themes and regions, such as high-end engineering and project management, deepwater subsea and frontier developments. The shares are rated a buy with a target price of NOK135.
Seadrill has leading exposure to Deutsche Bank’s preferred themes of ultra deepwater and harsh environment drilling, while also having impressive earnings per share growth, high backlog capability and strong operational capability. The bank says buy the shares up to NOK205.
Meanwhile, Saipem is rated a buy up to €44 because of its sector-leading diversification, solid backlog and revenue visibility across 2011 and 2012, exposure to several of the bank’s preferred themes and regions, high asset differentiation, high exposure to national oil companies and strong execution capability.