You are on page 1of 56

Europe Equity Research

19 January 2015

European Oilfield Services


U-shaped oil price recovery may lead to multi-year
down-cycle; 2015 E&P capex to decline by 15%+

Upgrade GMS to Overweight. GMS has high 2015 revenue coverage


(72% on firm contracts, 78% with options, 91% all-in), high exposure to
resilient ME NOCs opex spending, a reasonable balance sheet, and screens
cheap at 2015E P/E of 4.7x.
Downgrade Tecnicas to Underweight. The shrinking 2015 bid pipeline
may lead to contraction of backlog. TRE is a quality EPC contractor, in our
view, but its premium valuation 10.2x P/E is difficult to justify in the current
environment.
Downgrade CGG to Underweight. We believe the seismic market is in the
midst of a multi-year down-cycle. We expect CGG's asset heavy Acquisition
and Equipment businesses to fare poorly in a market that probably requires
structural change. We anticipate further earnings downgrades as the market
weakens. Our SOTP of 3.80 implies a 22% downside.
Downgrade Cape to Neutral. Risks of deferral of work in UK offshore and
low revenue coverage (50-60%) leave Cape highly dependent on order
intake in a weak market environment. Solid cash flow and dividend yield
provide some support; but we do not see enough upside at current levels.

Rahul Bhat

AC

(44-20) 7134-9059
rahul.bhat@jpmorgan.com
Bloomberg JPMA BHAT <GO>

Daniel Butcher
(44-20) 7742-8701
daniel.butcher@jpmorgan.com

Fred Lucas
(44-20) 7134-5943
fred.lucas@jpmorgan.com

James Thompson
(44-20) 7134-5942
james.a.thompson1@jpmorgan.com
J.P. Morgan Securities plc

For Energy Specialist Sales


advice, please contact
Ian Mitchell
(44-20) 7134-1356
ian.e.mitchell@jpmorgan.com

Figure 1: Upstream Y-o-Y capex growth


+35
+30
+25
+20
+15
+10
+5
+0
-5
-10
-15

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

Global E&P capex likely to fall by >15% in 2015. Our proprietary global
upstream capex survey shows the planned aggregate reduction is 9%, with
the steepest cuts in the Independents (-22%), then IOCs (-8%) and NOCs (1%). If the oil price stays below $60/bbl as we forecast, during 2015 capex
cuts could exceed 15%, and 2016 could bring a second consecutive year of
capex cuts. This is concerning for high-beta stocks on page 9 we show
their exposure to a both a downturn and recovery.

Oil Services & Equipment

We see a challenging year ahead for the oilfield services sector. We expect a
U-shaped rather than V-shaped oil price recovery with prices likely to
languish below $60/bbl for the next couple of years. Our updated E&P capex
survey now shows planned 2015 spending to decline by ~9% YoY (vs. -5%
just one month ago). We believe that capex cuts are trending to exceed the
15% cut witnessed in 2009 without a rebound in 2016. We think the seismic
and offshore drilling sectors are generally at the greatest risk from these capex
cuts, although each company is positioned differently. We upgrade GMS to
OW and downgrade Tecnicas to UW, CGG to UW and Cape to N.

Source: Company reports

Equity Ratings and Price Targets


Company
Cape
CGG
Gulf Marine Services
Lamprell PLC
Petroleum Geo-Services
Tecnicas Reunidas
TGS Nopec

Ticker
CIU LN
CGG FP
GMS LN
LAM LN
PGS NO
TRE SM
TGS NO

Mkt Cap
($ mn)
352.20
990.82
482.97
394.15
1,110.43
2,186.58
2,348.57

Price
CCY
GBp
EUR
GBp
GBp
NOK
EUR
NOK

Rating
Price
192
4.84
94
100
38.94
35.19
172.30

Cur
N
UW
OW
OW
UW
UW
N

Prev
OW
N
N
n/c
n/c
OW
n/c

Price Target
Cur
Prev
203
350
3.80
7.20
120
165
131
154
30.00
24.00
29.00
47.00
165.00
127.00

Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 16 Jan 15.

See page 50 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Table of Contents
E&P capex survey update........................................................3
Onshore/Offshore spending index............................................................................5
Overview of 2015 budgets.......................................................................................5
OFS sector revenue growth trend.............................................................................6

Lower for longer: OFS sector multiples .................................6


European OFS oil beta ...........................................................9
OFS sub-sector positioning for an oil price recovery ..............................................11
Further downside: misplaced optimism on margins ...............................................13
Silver lining: Possible M&A activity increase .......................................................15
Cape .....................................................................................................................18
CGG .....................................................................................................................20
Gulf Marine Services ............................................................................................23
Lamprell PLC .......................................................................................................26
Petroleum Geo-Services ........................................................................................27
Tecnicas Reunidas.................................................................................................29
TGS Nopec ...........................................................................................................32

Investment Thesis, Valuation and Risks ..............................39

Appendices
Appendix I: Methodology of the E&P capex survey ............34
Appendix II: Detailed capex breakdown ...............................35

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

E&P capex survey update


We have refreshed our global upstream capital spend data for as many of the 99
companies that our proprietary survey spans. Preliminary 2015 capex budgets from
80 companies show deepening cuts by Independents, IOCs and NOCs alike. We now
measure an 8.9% capex decline in 2015, but caution that it is still early days. We
expect further capex cut announcements to come through with companies Q4
results. We believe 2015 capex cuts may be worse than what we witnessed in 2009
when spending fell 15%. A stronger US$ may exacerbate this trend, since not all
capex is US$-denominated. Both our onshore and offshore spend barometers show
weakness in 2015. As activity slows and deflationary pressures build, the outlook for
OFS suppliers remains very challenging.
In aggregate the National Oil Companies are budgeting a -1.2% decline in
upstream capex in 2015 (down from +0.6% growth earlier). The low oil price will
likely erode NOC spending capacity and probably cause the deferral of some
projects.
In aggregate the International Oil Companies are budgeting an -8.1% cut in
upstream capex in 2015 (down from -7.3% earlier). IOCs continue to moderate
their growth ambitions, capital intensity, and drive deflationary pressures on their
supply chains. We expect aggregate budgeted cuts to fall further as more IOCs
present their 2015 capex budgets along with their Q4 2014 results.
In aggregate the Independents are budgeting a -22.2% cut in upstream capex in
2015 (down from -10.8% earlier). The Independents are the group that is most
sensitive to the oil price and this could fall further as cash preservation and
balance sheet protection become the mantra in this oil price environment. In the
US, Independents are budgeting a capex cut of -20.0% (down from -8.2% earlier)
in 2015, reflecting reduced liquidity to fund capex. International independents are
budgeting a capex cut of -27.5% (down from -24.7%), while Canadian
Independents are budgeting a capex cut of -24.7% (down from -6.5%), reflecting
deferral of some higher cost Oil Sands projects.
2015 capex decline underscores the big challenge for OFS: History shows a
very strong correlation between upstream capex change and the average
European OFS sector revenue growth. This makes us wary that consensus
European OFS revenue growth in 2015 is still +4%. Indeed, the historical
correlation suggests that the OFS sector has more downgrades to come. Most oil
companies have announced flexible capex budgets for this year; with scope for
further reductions. We continue to expect 2015 capex cuts to focus more on
discretionary spend categories such as higher risk exploration rather than lower
risk infield drilling. Although given the level of capex cuts expected and the
lower for longer oil price, we could see the deferral of several marginally
economical projects. As a result, we see further downside risk for the whole OFS
sector with the asset heavy marine seismic companies (PGS UW, CGG UW)
expected to fare the worst.

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Table 1: Aggregate organic exploration and production capital expenditure, sector revenue growth and global rig count data
Year
Initial Current/ Actual Prior year
YoY Sector 1 Onshore Offshore
Total
Avg.
Explor- Develop- Explorbudgets
final spending like-for-like change revenue avg. rig avg. rig avg. rig
Brent
ation
ment
ation
2
2
budgets
spending
growth
count
count
count
crude spending spending
share2
($m)
($m)
($m)
($m)
(%)
(%)
(%)
(%)
(%) ($/bbl)
($m)
($m)
(%)
2003
133,500
na
na
+24
-2
+19
28.4
19,603
83,719
19.0
2004 143,869 149,552 150,535
133,500
+12.8
+12
+1
+10
38.0
21,955
96,679
18.5
2005 171,647 184,682 193,663
149,712
+28.6
+16
+6
+15
55.2
29,502
129,832
18.5
2006 225,238 236,044 240,444
193,337
+24.2
+12
+0
+11
66.4
41,559
171,478
19.5
2007 298,877 297,551 319,306
239,986
+32.8
+22
+3
-1
+2
72.6
50,348
225,183
18.3
2008 340,852 348,482 389,328
314,754
+21.9
+14
+8
+0
+7
97.8
60,845
251,756
19.5
2009 340,825 327,465 332,229
388,689
-14.7
-8
-33
-12
-31
62.7
56,938
235,853
19.4
2010 354,033 358,395 370,453
330,836
+11.5
+3
+33
+6
+30
80.2
61,994
268,460
18.8
2011 420,764 432,848 436,782
369,439
+17.9
+16
+18
-0
+16
110.4
75,628
315,218
19.3
2012 479,243 485,190 519,764
436,767
+19.0
+9
+1
+4
+2
111.2
86,744
380,490
18.6
2013 545,161 542,924 571,911
519,764
+10.0
+4
-4
+7
-3
108.4
79,065
370,558
17.6
2014E 592,506 584,180
571,911
+2.1
-0
+5
+2
+5
99.4
41,444
231,516
15.2
2015E 482,982
530,012
-8.9
+4
50.4
13,435
83,966
13.8
Source: Company reports, Bloomberg; 1. USD based on Bloomberg consensus data for Amec, Cape, CGG Veritas, Hunting, Lamprell, Petrofac, PGS, Saipem, Seadrill, Subsea 7, Technip,
Tecnicas Reunidas, TGS Nopec and Wood Group; 2. exploration and development spending split not disclosed by all companies. 2015 spending change estimate is based on smaller sample of
companies which have disclosed 2015 capex on a like-for-like sample basis.

Figure 2: Y-o-Y change in organic upstream capex for NOCs, IOCs and independents
+50
+40
+30

+20
+10
+0
-10
-20
-30
-40
2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015E
NOCs

Source: Company reports

IOCs

Independents

Total

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Onshore/Offshore spending index


Figure 3: Estimated change in onshore & offshore spending
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
2004

2005 2006 2007 2008 2009


Change in offshore spend (%)

2010

2011 2012 2013 2014E 2015E


Change in onshore spend (%)

Source: J.P. Morgan estimates, Company data.

In 2015, we see both onshore and offshore capex falling (Figure 3). Onshore capex
showed relative strength in 2014, reflecting rising capital spending in US onshore
shale plays. Due to the recent softening of the oil price, however, capital spending in
US shale has been slowing down. Relatively high cost offshore capex is also
expected to continue its downward trend for the third successive year as offshorebiased IOCs look to moderate capex, rebalance cash flows and protect cash returns to
shareholders.

Overview of 2015 budgets


Since our last survey was published (December 2014), we highlight a few of the
major capital budget updates for 2015.
Suncor: Suncor cut its 2015 capital spending program by $1bn, from C$7.27.8bn to C$6.2-6.8bn this month. Of this total capital budget, the amount that it
expects to spend on upstream-related activities is C$5.6bn (at the midpoint of the
range), which in US$ terms represents an 8% reduction Y-o-Y. Suncor also
announced operating expense reduction of $600-800m over the next two years.
Crescent Point Energy (CPE): CPE announced a $1.45bn capex budget for
2015, which is 26% below its 2014 budget of $1.95bn. CPE also highlighted that
its budget assumed a 10% reduction in oil service costs but it could see greater
cost reductions if the low oil price persists.
MEG Energy: MEG Energy announced its 2015 capital budget of C$1.2bn in
early December. The continued collapse of the oil price prompted it to revise its
budgets lower to C$305m (down by c.75%) in mid-December.
Encana: Encana announced a 2015 capital budget of $2.7-2.9bn. This is an
increase of 10% from its 2014 budget of $2.55bn. The company highlighted that
it is focused on driving further cost efficiencies throughout its services supply
chain.
Pacific Rubiales: Pacific Rubiales announced a 2015 capital budget of $1.5bn in
early December. It then reduced its capex guidance to $1.1-1.3bn in mid-January,
this is down 48% Y-o-Y at the midpoint. The company also highlighted its
expectations of lower service costs for the year.

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

OFS sector revenue growth trend


Figure 4: E&P capex Y-o-Y change and oil services revenue growth 2007-15E
40
30
20
10
0
-10
-20
2007

2008

2009
2010
2011
YoY change in capex (%)

2012
2013
2014E
Sector revenue growth (%)

2015E

Source: J.P. Morgan estimates, Company data, Bloomberg consensus estimates.

Oil Services sector revenue growth outpacing E&P capex: Historically, the
European Oil Service sectors average revenue growth has closely tracked global
upstream capex growth (Figure 4). We note that the average consensus revenue
growth expected in 2014 has fallen from +11.7% in May to +4.7% in September to
+1.9% in December to -0.4% in January (below the capex growth expected in 2014).
However, for 2015, the average consensus revenue growth is still expected at +4%
(down from +5.8% in December). This may well be at risk given our preliminary
2015 capex data point to a -8.9% fall in capex. We expect service sectors that are
exposed to discretionary exploration spending (seismic and drilling services) to be hit
more than other sub-sectors.

Lower for longer: OFS sector multiples


With the OFS sector heading rapidly towards a potential drawn out cyclical low in our
view, a key question is, what is the appropriate valuation multiple to use? Over the last
dozen years, the simple annual average P/E has ranged from a minimum of 8.8x
(current) to a maximum of 17.9x (2003) with a substantial dip along the way at 10.5x
(the 2008/09 oil price crash).
Figure 5: Sector P/E (year average) versus oil price and E&P capex change yoy (%)
20.0

60%
40%

15.0

20%

10.0

0%
-20%

5.0

-40%

-60%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
YTD
Sector average P/E

Source: Bloomberg, J.P. Morgan estimates

Change in oil [RHS]

Change in capex [RHS]

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

A key issue for investors currently is what valuation multiple the sector will trade
towards in the short term. The oil price crash of 2008/09 provides the nearest in time
analogy, and the most meaningful sample size. However, we think this oil price and
sector downturn will be more severe than that of 2008/09, and therefore the likely
floor valuation multiple in 2015 must be lower, too. Some factors we considered in
concluding this are discussed below.
1. Lower for longer oil price doldrums may last longer than in 2008/09
We think there is a good probability that the current oil price slump will take years to
rebalance. We believe that as a base case, OPEC may be broken, for now, and will
not make timely production cuts. Lower prices are already curbing the growth in
emerging suppliers such as US shale. This is likely to result in a delayed U-shaped
oil price recovery, in contrast to the previous crash in 2009 which was a quick Vshaped recovery. We think the most likely price is $49/bbl 2015, $57/bbl 2016,
$65/bbl 2017 and $75/bbl in 2018 (JPMe).
Figure 6: Historical Brent oil price ($/bbl) and JPM forecasts
150

"V" recovery 2009

"U" recovery 2015-17e

100
50
-

Historical

JPMe

Source: J.P. Morgan estimates, Bloomberg.

Table 2: Revised Brent oil forecasts

New
Prior

Q1
42.0
75.0

Q2
43.0
80.0

2015E
Q3
53.0
85.0

Q4
58.0
98.0

FY
49.0
82.0

Q1
50.0
85.0

Q2
52.0
88.0

2016E
Q3
60.0
90.0

Q4
65.0
88.0

FY
56.75
87.8

LT
90.0
90.0

Source: J.P. Morgan.

The max-min fall in 2008/09 was very large ($146 to $36) compared to the present
situation ($115 to $46). However the oil price fall began in mid-2008 and recovered
substantially by mid-2009. Due to its quick recovery it was only below US$80/bbl
(which is the bottom of the range of long run marginal cost estimates) for around 13
months.
Furthermore, at the beginning of 2009, the consensus 2010 forecast was somewhat
robust at $74/bbl despite a spot price of low $40s. The market expected a healthy
rebound in prices (a V-shaped recovery) for most of 2009, only wavering for a few
months in the middle of 2009, when 2010 prices were expected to be in the $60s.
(Figure 7).

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Figure 7: Median Brent oil forecasts over time


2015 (16) median $62.7 (76.3) per bbl

120

Median Brent Forecast ($ bbl)

110
100
90
80
70
60
50
40
Aug 06
05
2006

07
2007

08
2008

09
2009

2010

10
2011

11
2012

12
2013

13
2014E

14
2015E

15
2016E

Source: JPMorgan, Bloomberg

2. E&P capex may fall more than the 15% in 2009 and stay lower
Capex budgets in 2009 benefitted from both spot price and expectations for 2010
being >$70/bbl for over half of 2009. Yet capex for the full-year dropped by 15%.
Our proprietary upstream capex survey shows that capex intentions for 2015 are
down 9% already which is a decrease of -4% versus just one month ago. We think
the fall in 2015 will be greater than in 2014 if oil outlook is close to our house
forecasts. It should also take longer for capex levels to recover if our base case
2016/17 oil price scenario is correct. This forecast implies oil will not revert back to
a reasonable incentive price for new production for 2 or 3 years.
We think a 15-20% aggregate fall in oil & gas upstream capex is a reasonable
assumption for 2015. We also think that investment could fall a further 5-10% in
2016 as the prices and the volume of backlog to support it also falls.
3. Valuation multiples should reflect lower for longer customer spending
Currently the Euro OFS industry trades on a 8.4x P/E. The 2009 full-year average
was 10.5x, but it is still well above the 2009 intra-year trough average of ~6x.
The P/E applied to a potential 24-36 months of low activity and slow rebound should
be lower than the P/E average across a year which mostly reflected expectations of
temporary fall in activity with a strong rebound.
We think the market is still too optimistic about where valuations might go on a oneyear view. It seems to believe too much in OPECs willingness to act cohesively or
Saudis willingness to act unilaterally this year.
We therefore think that the average P/E multiple for 2015 should reflect further
potential downside to market expectations if our bearish "lower for longer" scenario
eventuates (see discussion above).

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

We believe a discount to the 2009 average of at least 25% is justified. This suggests a
sector average P/E of 8x until the flood of bad news reduces and recovery becomes
evident.
We would not apply our 8x sector average multiple to every stock. Rather we apply a
premium or discount based on previous sub-sector lows, and subsector/company oil
beta.
In the following section, we look at the theoretical oil betas to a sharp decline in oil
companies spending and a U- or V-shaped oil price recovery.

European OFS oil beta


The 47% oil price decline in 2014 has resulted in oil companies cutting capex across
the board. Our global E&P capex survey now estimates a capex decline of 8.9% in
2015 (down from 5.1% a month ago). We expect capex to fall further as oil
companies continue to revise their budgets taking into consideration a lower oil
price. JP Morgans commodity team forecasts an average oil price of $49/bbl for
2015 and $57/bbl in 2016 which we believe sits below consensus in both years. With
the key drivers of oil field services deteriorating, we explore the potential high beta
names among the European oilfield service companies.
Capex exposure vs opex
We expect the falling E&P capex to have the most effect on companies that derive a
large portion of their income from capex-related activities and are more exposed to
the upstream part of the value chain. From Figure 8, we see that only two companies
derive almost their entire income from capex-related activities TGS and Tecnicas
Reunidas (TRE). Seismic companies in general receive a very large portion of their
revenues from capex-related activities (TGS, PGS and CGG). TRE on the other
hand, being an EPC company, has a large exposure to the capex market. Other EPC
companies like Saipem (SPM), Technip (TEC) and Petrofac (PFC) derive some
portion of their revenues from opex-related activities and hence rank lower on this
scale. On the other end of the spectrum, operations & maintenance (O&M) focused
companies like Cape and GMS naturally derive a larger portion of their income from
opex-related activities. Although we believe that O&M-related activities may also be
weak in 2015, we believe it will be affected to a lesser extent than capex-related
activities.

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Figure 8: Euro OFS capex exposure as a % of revenue


100%
80%
60%
40%
20%
0%
TGS TRE SPM HTG SDRL LAM PGS SUBC CGG AMFW TEC PFC WG/ GMS CIU
Capex exposure
Source: J.P. Morgan estimates, Company data.

Upstream vs. downstream exposure


Upstream produces raw products such as crude oil, and the weak oil price signal
directly adversely affects construction and production volumes. Downstream, by
contrast, is a transformative process and some projects can benefit from the lower oil
prices. Most companies in the European OFS space are exposed to upstream
spending. Some sub-sectors like drilling (SDRL), seismic (PGS, CGG and TGS), oil
country tubular goods (HTG, VN, TEN) etc. are exposed purely to upstream-related
spending. Only companies under the Engineering (AMFW, WG/) and EPC (TRE,
PFC, SPM, TEC) sub-sector have exposure to downstream-related spending. Notable
among them is TRE, which derives c.70% of its revenues from downstream-related
projects. While we expect some spending slowdown in downstream-related
activities, it may not be as weak as upstream spending.
Asset intensity
The falling oil price and capex can affect asset heavy companies with the risk of low
asset utilization the most. This is because asset heavy operations usually have high
fixed costs and low variable costs. So, margins for cash breakeven can be competed
to very low levels until it forces some asset/firms to retire/withdraw. Among the
European OFS space, we see GMS and CGG as some of the most asset heavy
companies. GMS owns lift boats (or SESVs) that provide well intervention and
other support services to offshore wells. CGG has a fleet of 13 seismic vessels and
also owns equipment manufacturing facilities. On the other end of the spectrum, TGS
and TRE are two asset light companies that we currently cover. Although TGS is a
seismic company, it does not own any vessels and usually charters vessels on a
project-by-project basis. TRE, an EPC company, sub-contracts its construction work
and thus does not own any yards or related assets.
Operational leverage
Most asset-heavy companies are naturally operationally levered, although some asset
light companies also show significant operational leverage. This means that earnings
will likely fall disproportionately in response to declining revenue in the downturn,
due to inflexible cost bases. Notable among these in the European OFS space is
Cape, which has relatively low asset intensity but high operational leverage due to
the labor-intensive nature of its business.

10

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Financial leverage
Financial leverage magnifies the impact of operating profit changes; it is a doubleedged sword. In a severe downturn, large debt obligations can lead to liquidity issues
and force asset sales at unfavorable prices, among other things. We use consensus
ND/EBITDA as a proxy for the financial leverage of a company. Among the
European OFS companies, Seadrill (SDRL) is amongst the highest-levered
companies. It has a 2015E ND/EBITDA of 4.6x based on Bloomberg consensus. On
the other end of the spectrum we have TRE, TGS, TEC (Technip) and LAM
(Lamprell) which are net cash companies.
Table 3: European OFS - Theoretical oil price beta

Source: JP Morgan estimates

Overall, we believe the theoretical oil price beta of a company should be high if it
has (i) high exposure to capex-related activities; (ii) high upstream exposure; (iii) an
asset heavy business; (iv) high operational leverage; and (v) high financial leverage.

OFS sub-sector positioning for an oil price recovery


Brent oils 59% fall in the last six months has led to the European OFS sector losing
c.39% of its market cap and 2014 consensus revenue expectations falling from
growth of 11.7% to a decline of 0.4%. The key question likely in investors minds is
how to position themselves for any eventual recovery in the oil price. While JP
Morgans commodity team believes that the Brent can still fall further (expect an
average price of $38/bbl in March), they forecast an eventual recovery in the price in
the second half of the year (2015 average price of $49/bbl). For 2016, they forecast
an average Brent price of $57/bbl. Thus we may see a low oil price scenario for the
next couple of years or see a U-shaped' recovery of the oil price. Although we
believe it is unlikely, the oil price may also show a quick recovery similar to what we
saw in 2008-09 or a 'V-shaped' recovery.
11

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Table 4: European OFS sub-sector breakdown


Seismic

Offshore drillers

OCTG

Land drillers

Upstream EPC

PGS
CGG
TGS

Seadrill

Vallourec
Tenaris
Hunting

Eurasia Drilling

Petrofac
Technip
Saipem
Subsea 7
Lamprell

Engineering
Amec
FosterWheeler
Wood Group

Downstream EPC
Tecnicas
Reunidas

Operations &
Maintenance
Cape
GMS

Source: J.P. Morgan estimates.

We expect the path to recovery will be different for each company and sub-sector in
the European OFS space. Our base case assumes a gradual oil price recovery to a
long-term oil price of $90/bbl by 2019. We believe that low oil prices for 2015 and
2016 could put severe pressure on the cash flows of oil companies (NOCs, IOCs and
Independents alike) and lead to consecutive years of capex declines. In such a
scenario, we believe that sub-sectors that have high exposure to discretionary
exploration spend could face severe structural challenges. The seismic and offshore
drilling sectors rank highest among those exposed to exploration spending. Low oil
prices for 2015 and 2016 could see asset utilization for companies in this sector fall
significantly and may also require capacity reduction.
The next in line with exposure to exploration-related spending are oil country tubular
goods (OCTG) companies and land drilling companies. Companies from this subsector may also face similar asset utilization and capacity issues. Oil companies to
some extent are also expected to delay marginally economical projects and postpone
investments. This could affect the bid pipeline of upstream EPC companies and
engineering-focused companies. Lowest on the scale of companies that would likely
suffer operationally as a result of a U-shaped recovery in the oil price are those that
are highly exposed to the operations & maintenance and/or downstream sectors.
Overall, we believe that companies that have a lower oil price beta (as outlined in
the section above) would be in a relatively better position to recover from a weak
market.
Figure 9: Sub-sector preference for a U-shaped oil price recovery

Land
drillers

Offshore
drillers OCTG

Marine
seismic

Operations &
Maintenance

Engineering

Upstream Downstream
EPC
EPC

Source: J.P. Morgan estimates.

In the event of a relatively quicker-than-forecast oil price recovery or a V-shaped


recovery, we may see a faster recovery in capex spending and thus exploratory
spending. In such a scenario, we expect operations of offshore drillers, marine
seismic, land drillers and OCTG companies would recover the quickest followed by
the engineering, EPC and O&M companies. Overall, in a V-shaped oil price

12

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

scenario, companies with a high oil price beta (as defined in the section above)
could recover quicker.
Figure 10: Sub-sector preference for a V-shaped oil price recovery

Operations &
Maintenance
Engineering

Land
drillers
OCTG

Downstream Upstream
EPC
EPC

Offshore
drillers

Marine
seismic

Source: J.P. Morgan estimates.

Further downside: misplaced optimism on margins


In the section above we show that each sub-sector of the OFS space has a different
oil price beta'. Two sub-sectors that we believe would fare worst if the oil prices and
capex remain under pressure are seismic and offshore drilling companies.
Figure 11: Seismic sector EBITDA margin performance

51%

Figure 12: Offshore drilling sector EBITDA margin performance


60%

55%

55%

8% fall in margin

50%

47%

29% fall in margin

45%
40%

43%

35%

39%

30%
25%

35%
2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E
Average Off. Drilling*

Average Seismic*
Source: J.P. Morgan estimates, Bloomberg. * PGS, CGG, TGS and Fugro considered.

Source: J.P. Morgan estimates, Bloomberg. *Seadrill, Diamond Offshore, Noble Corp,
Transocean and Ensco considered.

The seismic and offshore drilling sectors live at the sharp end of the capex cycle.
From Figure 11 and Figure 12 we can see that the peak-to-trough falls in the average
margins for the seismic and offshore drilling sectors during the last oil price collapse
were 8% and 29%, respectively. We anticipate the recovery in the oil price to be
slower this time around, which could lead to greater margin decline and a much
slower recovery in margins than is currently anticipated.
However, as we see from the figures above, consensus is still forecasting margin
expansion for the seismic companies over 2014-16 and a gradual reduction in
margins for the offshore drilling companies over the same period. We expect this to
correct (i.e. fall by a greater extent) as market weakness becomes more apparent.

13

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Figure 13: OCTG sector EBITDA margin performance


30%

Figure 14: EPC sector EBITDA margin performance


12%
11%

28%

10%

26%

9%
8%

24%

7%

22%

6%
2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Average OTCG*

Average EPC*

Source: J.P. Morgan estimates, Bloomberg. * Tenaris, Vallourec, Hunting, Schoeller-Bleckmann


and Core Labs considered.

Source: J.P. Morgan estimates, Bloomberg. *Amec FosterWheeler, Petrofac, Wood Group,
Saipem, Tecnicas Reunidas and Technip considered.

The OCTG and EPC sectors are other sectors where we could see further margin
compression. In the OCTG sector, the 2008-09 oil price collapse led to a c.4% fall in
margins. Consensus forecasts currently expect only a 1% margin compression. We
believe this could be higher given the slower expected recovery of the oil price and
of capex compared to the 2008-09 period. The 2008-09 oil price collapse left EPC
margins largely unscathed. We believe that the continued investment over 2008-09
by Middle Eastern NOCs helped these companies achieve stable margins. Over the
2014-16 period, however, we expect investments by Middle Eastern NOCs to slow
down (unlike the 2008-09 period) due to the expected prolonged low price
environment. Thus the margin expansion being forecast for these EPC companies
may not materialize and in our view could even lead to a decline in margins.

14

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Silver lining: Possible M&A activity increase


The poor performance of the oilfield services sector raises the question of potential
M&A activity, both offensive and defensive. Acquisitive companies may look to
target assets and businesses that are now cheap where once they traded at a premium.
On the defense, companies under financial pressure may be willing or forced to sell
themselves, or assets or divisions, despite the less attractive prices.
M&A activity could give
investors an attractive exit

Below we make some general observations about likely company characteristics on


both sides of a possible transaction within the current environment. We analyze these
characteristics in the sections below under:
Funding strength of OFS companies (as potential acquirers)
Financial weakness or attractiveness of OFS companies (as potential targets)
Relative bargains (recovery upside) and digestibility (i.e. size)
As a general comment we do not think many obvious potential deals exist based
purely on strategic rationale. That would not preclude a deal happening of course.
M&A history across all sectors is littered with examples of management hubris
regarding such decisions. If pushed, we think an intercontinental merger to create a
larger footprint and cross-sell products, like the Amec Foster Wheeler deal, is among
the more logical and potential scenarios. A buyer from outside OFS, looking to move
into a new arena at seemingly relative bargain prices, may also be one of the more
probable scenarios. We think further inter-European OFS proposals, like the
Technip-CGG proposal last quarter, are less likely than the others.
Financial strength indicators
One of the key questions then is financial strength of both potential acquirers and
potential targets. For acquirers, equity values in the space are generally depressed,
meaning their takeover currency is devalued and they are loathe to issue equity for
cash. But, debt is still very cheap by historical standards. For targets that are under
financial pressure, mergers may give companies some breathing space via
synergies and a stronger competitive position and business mix.
In the analysis below we firstly look at the European OFS sector key gearing ratios.
Companies with the high ND/EBITDA and ND/EV are generally at most financial
risk: Figure 15 and Figure 16. We argue such companies may also be at a higher
probability of receiving an opportunistic offer, or of needing to divest good
businesses to others.
However we would not discount the likelihood of companies with strong (or cashrich) balance sheets also being targets. It is true they are better able to defend
themselves against opportunistic offers. However companies that are net cash could
effectively self-finance their own acquisition, to an extent: Figure 16.
Large absolute debt capacity means a greater ability to make potential acquisitions:
Figure 17. We think any acquiring company is likely to eschew equity issuance given
low share prices. They therefore would need to fund with debt and cash. We
simplistically assume for this illustrative purpose that ND/EBITDA of 2.5x is the
maximum the typical OFS acquirer would contemplate as many covenants for the
sector have been around 3.0x undisturbed.
15

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

We test our analysis against a recent deal. For one of the deals proposed recently,
Technips approach to CGG, the metrics line up. Technip shows the third-strongest
ND/EBITDA and ND/EV ratio in the sector, and the largest absolute debt capacity
by a factor of 2x. Its proposed target CGG has the third-weakest ND/EBITDA and
equal weakest ND/EV, and the second-weakest absolute debt capacity.
Figure 15: Euro OFS sector Net debt / EBITDA
4.6

5.0
4.0

2.9

3.0
2.0

2.8

2.2

1.8

1.4

1.2

0.6

1.0

1.2

0.6

0.4

0.7

0.2

Average

TGS

Tecnicas

Technip

Subsea 7

Saipem

PGS

Petrofac

Lamprell

Hunting

GMS

CGG

Cape

AmecFW

Aker
Source: Bloomberg

Seadrill

(0.4)

(0.8)

(2.0)

Wood

(1.0)

Note: 2015E consensus data used for all stocks

Figure 16: Euro OFS sector Net debt / Enterprise Value


100%

71%

50% 25%

35%

30%

24%

16%

12%

71%

60%

47%

11%

9%

8%

(14%)

(16%)

(50%)

Source: Bloomberg

Average

Seadrill

Wood

TGS

Tecnicas

Technip

Subsea 7

Saipem

PGS

Petrofac

Lamprell

Hunting

GMS

CGG

Cape

Aker

AmecFW

(50%)
(100%)

Note: Dec 2014E consensus data used for all stocks

Figure 17: Euro OFS sector net debt capacity at 2.5x ND/EBITDA
5,162

2,403
1,447
41

1,387

Note: 2015E consensus data used for all stocks

Seadrill

Wood

TGS

Tecnicas

Technip

PGS

Petrofac

Lamprell

Hunting

(523)

GMS

CGG

Cape

AmecFW

1,836

393

Subsea 7

121

496 586

(360)

Source: Bloomberg

16

1,420

1,361

Saipem

442

Aker

6,000
5,000
4,000
3,000
2,000
1,000
(1,000)
(2,000)

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Bargain price indicators


Our second piece of analysis is to consider the bargain factor that an acquirer
might see in a company. By nature, a trade acquirer is likely to be positive on the
potential upside in the sector. They will be taking a long-term view incorporating an
anticipated recovery cycle.
To provide a rough measure of this, we look at which companies have the greatest
differential between their respective 2014 peaks and current price. We plot this
against market cap as well to highlight smaller companies the assumption being
that smaller bolt-on acquisitions are more likely to happen than mega acquisitions
requiring additional external financing (the exception to this tendency would be a
part scrip deal, similar to the Amec and Foster Wheeler acquisition structure.
However that deal was premised on industrial logic and less on opportunistic pricing
that we are analyzing here).
Again, one recent merger target, CGG, fits our profile. It is small in market cap
(more digestable for a potential large acquirer) and could be considered attractively
priced relative to its previous highs (at a better point in the cycle). We would suggest
that smaller companies on the bottom left of Figure 18 are relatively more likely to
be attractive on a corporate level if and when a further round of M&A begins.
Again, applied to a recent real life M&A proposal, this analysis holds some merit.
CGG has the third-greatest peak-trough valuation spread and is one of the smallest
market caps. Technip, its suitor, is one of the largest and its share price drop is better
than more than half the sector.
Figure 18: Share price decline since 2014 share price high (%), bubble size = market cap
(10%)

TGS
TRE

(20%)
WG/

AMFW
(30%)
SBMO

(40%)
PFC

(50%)

SPM
SDRL

(60%)

HTG

PGS AKSO

SUBC

TEC GMS

CIU

LAM

CGG

(70%)
(80%)
0

10

12

14

16

18

20

Source: Bloomberg, JPMorgan

17

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Cape

Neutral
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Market Cap ( bn)
Fiscal Year End
Shares O/S (mn)

192
16 Jan 15
203
31-Dec-15
335-177
0.23
Dec
121

Cape plc (CIU.L;CIU LN)


FYE Dec

2013A

2014E

2015E

2015E

2016E

2016E

Adj. EPS FY (p)


Bloomberg EPS FY (p)
Revenue FY ( mn)
EBITDA FY ( mn)
EBITDA Margin FY
EV/EBITDA FY
ROE FY
Adj P/E FY

23.58
23.40
697
58
8.3%
5.0
19.4%
8.1

26.48
26.90
660
64
9.7%
5.6
23.9%
7.3

30.25
696
72
10.4%
6.7
24.7%
6.3

27.10
30.80
663
68
10.3%
5.1
22.4%
7.1

34.53
732
77
10.5%
5.7
25.0%
5.6

28.64
34.20
668
70
10.5%
4.7
21.7%
6.7

(Prev)

(Curr)

(Prev)

(Curr)

Source: Company data, Bloomberg, J.P. Morgan estimates.

Challenging offshore UK and low revenue visibility Downgrade to N


UK offshore business expected to be very weak in 2015. We anticipate that the
significant fall in oil prices will lead to severe pressures on margins of offshore
contractors in relatively higher cost oil producing regions. Additionally, we see
risk of delays to maintenance, refurbishment and other discretionary spending
work. As a result we expect revenues from Capes UK offshore business, which
accounts for c.20-30% of its group revenues, to fall in 2015 and 2016.
MENA growth rate moderated. The oil price collapse has also hurt the cash
flows of NOCs and we note the recent delays/cancellation of several large EPC
projects (the $2.5bn Ras Tanura refinery in Saudi Arabia, $7.4bn Al-Sejeel and
$6.4bn Al-Karaana petrochemical projects in Qatar etc.). Cape is usually
involved in the construction phase of projects, which typically starts a year or two
after the EPC contract is awarded. Hence, while this does not affect Cape's nearterm earnings, it is expected to dampen its medium-term growth expectations in
the region. We could start seeing projects that have already been awarded getting
delayed this is a near-term risk to Capes earnings.
Typically low revenue visibility adds downside risk. Compared to the rest of
the European OFS sector, Cape displays low revenue visibility. Cape typically
has a forward year revenue visibility of between 50-60% by its year-end results.
This leaves its revenues relying heavily on order intake during the year. We
believe in this low oil price and falling capex environment there is a risk that
order intake may slow, which could result in revenue and earnings downgrades.
Strong cash generation and dividend yield. Although we expect Cape to have a
relatively high net book leverage ratio of 73% by end 2015, Cape has robust cash
generation capabilities. We expect Cape to generate an equity free cash flow of
yield of 12% in 2015 and 16% in 2016. We also expect Cape to continue paying a
stable dividend of 14p (2015E dividend yield of 7%).
H2 2014 results preview. Cape is scheduled to report its year-end 2014 results
on 18 March. We make no changes to our 2014 numbers and expect Cape to
deliver 2H 2014 revenues of 338m, up 4% Y-o-Y and up 5% sequentially,
operating profit of 25m, up 18x Y-o-Y and 18% sequentially, and net income of
15.3m, up from a loss of 8m in 2H 2013 and up 22% sequentially.
Downgrade to Neutral. We update our model and reduce our 2015/16 EPS to
27.1p/28.6p, which is now 12%/16% below consensus forecast. We believe that
Capes revenues face strong near- to mid-term headwinds. We downgrade Cape
18

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

to Neutral, reduce our 2015E target PER from 11.5x to 7.5x and reduce our end2015 price target to 203p (6% upside).
Table 5: Cape - Interim estimates
Year end Dec
Revenue
YoY revenue growth (%)

1H12
360
+7

2H12
386
-0

2012
746
+3

1H13
371
+3

2H13
326
-16

Operating profit before other items


Operating profit margin (%)

15
4

12
3

28
4

25
7

16
5

41
6

23
7

26
8

49
7

Amortization of intangible assets


IDC costs
Ex ceptional items
Total operating profit

0
0
0
15

0
-1
-159
-148

0
-1
-159
-133

0
0
-16
9

0
-15
0
1

0
-15
-16
10

-1
0
-1
21

0
0
0
25

-1
0
-1
46

Finance income
Finance costs
Net finance income

1
-6
-5

1
-6
-5

2
-12
-10

1
-6
-5

1
-6
-5

2
-12
-10

1
-5
-4

1
-5
-5

1
-10
-9

10
-2
21%
8

-153
-17
-11%
-170

-143
-19
-13%
-162

4
0
-7%
4

-4
0
-3
-3
-75% ####
-7
-3

17
-3
20%
14

21
-5
22%
16

38
-8
21%
30

-1
7
-1
6
8
6.9

-42
-212
-1
-212
7
5.8

-43
-205
-2
-207
15
12.7

-3
2
-1
1
16
13.5

-1
13
-1
13
16
12.9

0
16
-1
15
17
13.5

-1
29
-1
28
32
26.5

Profit before tax


Income tax ex pense
Tax rate
Profit/(loss) from cont operations
Profit attributable to discount operations
Profit/(loss) for the y ear
Minority interests
Net profit to equity shareholders
Adjusted net profit
Adjusted diluted EPS

-2
-9
1
-8
12
10.1

2013 1H14E 2H14E 2014E


697
322
338
660
-7
-13
+4
-5

-5
-7
0
-7
29
23.6

Source: Company reports and J.P. Morgan estimates.

19

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

CGG

Underweight
Company Data
Price ()
Date Of Price
Price Target ()
Price Target End Date
52-week Range ()
Market Cap ( bn)
Shares O/S (mn)

CGG (GEPH.PA;CGG FP)


FYE Dec
4.84
16 Jan 15
3.80
31-Dec-15
12.83-4.25
0.86
177

Adj. EPS FY ($)


Bloomberg EPS FY ($)
Revenue FY ($ mn)
EBIT Margin FY
EV/EBITDA FY
P/BV (x) FY
ROE FY
Adj P/E FY

2013A

2014E

2014E

2015E

2015E

2016E

2016E

(3.95)
(3.15)
(2.99)
0.50
2.48
3,768
2,990
3,022
(11.1%) (5.8%) (4.6%)
2.7
4.2
3.8
0.26
0.31
0.30
(16.9%) (15.9%) (15.0%)
NM
NM
NM

0.18
3,110
7.8%
3.5
0.30
1.0%
30.8

(0.37)
2.64
2,776
3.3%
4.0
0.31
(2.0%)
NM

0.49
3,198
9.2%
3.3
0.29
2.6%
11.5

0.05
0.21
2,738
6.5%
3.8
0.31
0.3%
110.0

(Prev)

(Curr)

(Prev)

(Curr)

(Prev)

(Curr)

Source: Company data, Bloomberg, J.P. Morgan estimates.

Acquisition and Equipment to suffer as seismic market contracts D/G to N


Weak seismic market could last until 2016. We anticipate that oil companies
may refocus their capital spending objectives as they adjust to a low oil price
environment in 2015 and 2016. This could mean that the weak marine seismic
market witnessed in 2014 could continue well through 2015 and into 2016 as oil
companies conserve cash and put off exploration spending.
More vessel retirements may be needed. We believe a large portion of 2014
vessel retirements were in response to the weak seismic market during 2014. We
anticipate the seismic market to be far weaker in 2015 compared to 2014 and thus
expect further vessel retirements from the market as demand falls.
Consensus expected to fall further. We forecast CGG's asset heavy Acquisition
and Equipment segments facing further pressure on revenue and margins. In
2015, we expect CGGs Acquisition segment to continue being in the red and see
revenues for its Equipment segment falling by 5%. Overall we now forecast
2014/15/16 EPS of $(2.99)/$(0.37)/$0.05 which is 138/20/20c below 2014/15/16
consensus.
Table 6: CGG impairments history
Year
2007
2008
2009
2010
2011
2012
2013
2014

Impairment ($m)
0
7
533
131
0
36
818
296

Source: Company data, J.P. Morgan estimates.

20

More impairments to come. The weak seismic market may require CGG to
write down some of its goodwill, MC library and/or vessels. We note that CGGs
goodwill/MC library is 76%/31% of its expected end-2014 equity. While
goodwill is a mere (lagging) accounting entry, it confirms the company sees
rough times ahead and in the worst case can signal internal expectations are
lower than the market.
Q4 2014 preview. CGG is scheduled to report its Q4 2014 results on 26
February. CGG pre-reported record MC sales of $290m in Q4 along with its
vessel availability and production rates. Adjusting our numbers for these, we now
forecast 4Q14 revenues of $832m (Bloomberg consensus: $716m), EBIT of
$27m (consensus $45m), recurring EBIT of $11m, net income of $(45)m
(consensus $(9)m) and EPS of $(0.25) (consensus of $(0.04)).

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Table 7: CGG - Quarterly estimates


Year end Dec
Operating revenues
Other income from ordinary activ ities
Total income from ordinary activities
Growth (%)

1Q13
871
1
871
+11

2Q13
1,032
1
1,032
+24

3Q13
908
0
908
+6

4Q13
955
1
956
+2

2013
3,766
2
3,768
+10

1Q14
806
0
807
-7

2Q14
689
1
690
-33

3Q14E
694
0
694
-24

4Q14E
831
0
831
-13

2014E
3,021
1
3,022
-20

Operating costs
EBITDA
EBITDA margin (%)
EBITDA growth (%)

-591
281
32.2
+28

-682
351
34.0
+50

-600
309
34.0
+7

-702
255
26.6
-14

-2,574
1,194
31.7
+15

-588
219
27.1
-22

-554
136
19.7
-61

-462
232
33.4
-25

-510
322
38.7
+26

-2,114
908
30.0
-24

Multi-client surv ey s depreciation & amortization


Other depreciation & amortization
Total depreciation & amortization

-72
-112
-183

-102
-116
-218

-96
-112
-208

-129
-873
-1,002

-399
-1,213
-1,612

-80
-104
-184

-114
-207
-322

-89
-156
-245

-202
-92
-294

-486
-560
-1,045

Op income before impairment of goodwill


Operating income margin (%)

97
11

132
13

100
11

-747
-78

-417
-11

34
4

-186
-27

-14
-2

27
3

-138
-5

Impairment of goodw ill


Restructuring costs
Other non-recurring income
Operating income

0
0
55
152

0
0
-11
122

0
0
-21
79

0
0
0
-747

0
0
23
-395

0
0
0
34

0
0
0
-186

0
0
0
-14

0
0
0
27

0
0
0
-138

Ex penses related to financial debt


Income prov ided by cash & cash equivalents
Cost of financial debt - net

-47
1
-46

-47
0
-47

-52
0
-51

-48
0
-48

-193
2
-192

-48
1
-48

-63
0
-62

-45
0
-45

-45
0
-45

-201
2
-200

Variance on derivativ e on conv ertible bonds


Other financial income (loss)
Income (loss) before taxes

0
-5
101

0
0
75

0
-8
20

0
-10
-805

0
-22
-609

0
3
-11

0
-47
-295

0
-5
-63

0
0
-18

0
-49
-387

Income tax es
Net income from consolidated companies
Equity in income (losses) of investees
Net income (loss)
Net income margin (%)

-32
69
11
79
9

-35
40
-5
36
3

-11
10
-6
4
0

-6
-810
0
-810
-85

-83
-692
1
-691
-18

-12
-23
-17
-39
-5

-16
-311
-13
-325
-47

-43
-106
-10
-116
-17

-9
-26
-17
-43
-5

-79
-466
-56
-522
-17

Minority interests
Net income

-2
77

-1
35

-2
2

-3
-813

-8
-699

-1
-40

-2
-327

-2
-118

-2
-45

-7
-530

202
0.43
0.43
-9

178
0.20
0.20
-55

178
0.01
0.01
-98

177
-4.59
-4.59
-815

177
-3.95
-3.95
-14

177
-0.23
-0.23
-94

177
-1.85
-1.85
+708

177
-0.67
-0.67
-68

177
-0.25
-0.25
-91

177
-2.99
-2.99
+1084

Fully diluted # shares


Basic EPS
Diluted EPS
Diluted EPS growth (%)
Source: Company reports and J.P. Morgan estimates.

Valuation
We update our SOTP valuation away from an acquisition-based scenario (where we
used normalized earnings and multiple) to one that better reflects the current weak
outlook for the seismic market. We reduce the multiple used for CGG's vessels from
1.0x to 0.9x of book value to reflect the weak expected demand for vessels in this
downturn. For the GGR segment, we use the average 2015-16 EBITDA and apply
TGS's average 2009 (bottom cycle) EV/EBITDA. For its Equipment segment we
apply a 4.5x multiple (slight premium to the average of its peers in Table 9). We thus
value it at 3.8/share, which implies a 2015E EV/EBITDA multiple of 3.8x. We
downgrade CGG to Underweight and our Dec-15 price target of 3.80 offers 22%
downside from current levels.

21

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

While this might screen cheap on an EV/EBITDA basis, we caution that the seismic
industry may be at the brink of structural change. The low oil price in 2015 and 2016
is expected to force oil companies to moderate their upstream capex. We believe this
could lead to a three-year down-cycle for the seismic industry the longest in recent
memory and could result in severe asset under-utilization and write-downs.
Table 8: CGG - Sum of the parts value

Vessels
GGR
Equipment
Other land and building
Net debt YE 2015E
Total
Shares in issue (diluted)
Value ($/Share)
Value (/Share)
Implied 2015E EV/EBITDA (x)

Tangible net
book value
2014E ($m)
425

Avg. EBITDA
(2015-16E, $m)

Multiple (x)

Value ($m)

0.9
2.5
4.0
1.0

383
1,819
768
200
-2,383
786
177
4.4
3.8
3.8

728
192
200

Source: J.P. Morgan estimates.

Table 9: Sercel peer valuation metrics


Company
Seismic Equipment
Geospace Technologies
Mitcham Industries
Other OFS equimpent manufacturers
Hunting
Vallourec
Tenaris
National Oilwell Varco

Source: Bloomberg.

22

Share price Shares in


LCU issue (m)

Market value
LCU
$m

Net debt ($m)


2013A 2014E 2015E

2013

EV ($m)
2014

2015

EBITDA ($m)
2013A
2014E

2015E

ND / EBITDA
2013A 2014E

2015E

2013A

EV/EBITDA
2014E

0.0
0.0

4.4
1.5

3.3
1.7

9.2
1.7

USD
USD

0.6
1.9
-0.5
-0.7
Average
Average ex Geospace
STD

4.0
4.1
5.4
5.9
4.2
4.2
1.5

4.6
5.0
5.6
5.2
4.2
4.4
1.5

4.5
5.1
5.5
5.0
5.2
4.3
2.4

USD
EUR
USD
USD

24.2
5.5

13
12

318
66

318
66

-2
-11

-53
0

0
0

316
55

265
66

318
66

72
37

81
38

34
39

0.0
-0.3

-0.7
0.0

436.5
19.5
11.5
58.0

148
131
1,181
431

648
2,546
13,553
24,960

983
3,000
15,972
24,960

206
2,249
-911
-286

193
1,944
-1,014
-1,203

146
1,861
-1,339
-3,177

1,188
5,249
15,061
24,674

1,176
4,944
14,958
23,757

1,128
4,862
14,632
21,784

297
1,271
2,795
4,178

258
981
2,684
4,564

252
956
2,665
4,383

0.7
1.8
-0.3
-0.1

0.7
2.0
-0.4
-0.3

Reporting
2015E Currency

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Gulf Marine Services

Overweight
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Market Cap ( bn)
Shares O/S (mn)

94
16 Jan 15
120
31-Dec-15
167-92
0.32
339

Gulf Marine Services (GMS.L;GMS LN)


FYE Dec
2012A
Adj. EPS FY ($)
0.16
Bloomberg EPS FY ($)
Revenue FY ($ mn)
143
EBITDA FY ($ mn)
93
EBITDA Margin FY
65.5%
EV/EBITDA FY
8.2
ROE FY
29.7%
Adj P/E FY
8.9

2013A
0.25
0.21
184
121
65.8%
6.7
40.1%
5.8

2014E
0.24
0.23
196
125
63.7%
6.2
30.3%
5.9

2015E
0.30
0.30
244
157
64.2%
5.4
26.2%
4.7

2016E
0.40
0.38
306
200
65.3%
3.8
27.0%
3.6

Source: Company data, Bloomberg, J.P. Morgan estimates.

High revenue visibility and exposure to low-cost producing region U/G to OW


High exposure to the Middle East. We believe the Middle East (ME) region,
which produces some of the lowest-cost oil in the world, will continue to invest
to maintain production from its fields even at the low prevailing oil price,
especially if the core of OPEC wants to hold market share. GMSs main
customers in the ME (Saudi Aramco, ADNOC, Adma-Opco) are some of the best
capitalized NOCs in the world and are thus most likely suitably equipped to
weather the low oil price. GMS, which provides vessels for well maintenance
operations (i.e. opex-related spending), is the market leader in the SESV market
in the ME. It derived 64% of its H1 2014 income from ME, and we expect this to
go up to 72% in 2015.
Relatively high visibility. Most of GMSs vessels are on long-term contracts
with NOCs in the ME. Thus, GMS benefits from relatively high revenue visibility
with its current backlog we estimate 72% of GMSs 2015 revenues are covered
by firm contracts. This increases to 78% if we include options (since 2007 over
90% of options on GMS's vessel have been exercised). On adding non-charter
income (income from its AHTS vessel, catering services etc.), which is not part
of its backlog, we estimate 91% of GMSs 2015 revenues are covered. A longterm contract for the Enterprise would increase sales visibility to 100% +, based
on our calculations.
Sound balance sheet, strong cash generation. Although GMS has a relatively
high B/S gearing (77% in 2015E), it has high revenue visibility and cash
generation. In 2015, we expect GMS to generate limited free cash flow after
meeting its capex commitments (JPMe $139m). In 2016, we estimate GMS will
generate substantial cash (2016E FCFF yield of 21.3%) as its new vessels
contribute to cash generation and capex tapers off. GMS also has a capex facility
of $110m in place to finance its acquisition of the Keloa and Pepper in 2015 and
2016, respectively.
Market placing at these levels not a risk. One of GMSs principal shareholders,
Gulf Capital (owns 52%) had stated its intention to exit the company over a twoyear period. We believe the risk of a substantial market placing is highly unlikely
at these levels (share price down 28% since IPO, 42% since highs in April 2014).
2015E target P/E multiple of 6.0x. GMS currently trades on 2015E PER and
EV/EBITDA multiples of 4.7x and 5.3x, respectively. This compares to a peer group
average 2015E PER and EV/EBITDA of 5.5x and 5.7x, respectively, using
Bloomberg consensus data (Figure 20) and European OFS average 2015E PER and
23

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

EV/EBITDA of 8.4x and 4.6x, using consensus data. GMS thus trades at a 15% PER
and 6% EV/EBITDA multiple discount to its peer group and at a -44% PER and
+16% EV/EBITDA multiple difference to the European OFS sector average. We
believe GMS's advantaged business model, high revenue visibility, high EBITDA
margin along with a low tax rate should allow it to trade at a premium to its peers.
We value GMS based on a target 2015E PER of 6.0x (c.10% premium to its peer
group and at a c.30% discount to average European OFS sector). This implies an
end-2015 target price of 120p (28% upside from current levels) based on the spot
/$ FX.
Key catalysts in 2015. (i) Long-term contract for large SESV Enterprise: The
Enterprise is expected to finish its current contract in early Q1 2015 and
management had earlier indicated that it was bidding on a couple of long-term
contracts in the MENA region a long-term contract could increase its revenue
visibility to over 100% of our 2015 forecast; (ii) option exercise for small SESV
Kudeta: GMS Kudetas current contract is expected to finish late Q1 2015 and its
customer has the option to extend the contract for another six months; and (iii)
full year 2014 results in February-March which will be accompanied by updated
guidance.
Figure 19: GMS vessel contract snapshot

MENA

NA

Feb-15 Jan-18

Apr-20

Kudeta (K5)

Small

MENA

Maintenance

Kinoa (K7)

Small

MENA

Kikuy u (K3)

Small

MENA

Kaw aw a (K4)

Small

MENA

Well serv ices

Sep-11 Sep-15 Sep-16

Naashi (K1)

Small

MENA

Well serv ices

Jan-13

Keloa (K6)

Small

MENA

Maintenance

Mar-13 Mar-16 Mar-18

Kamikaze (K2) Small

MENA

Well serv ices

Jul-13

EOR

Aug-12 Aug-15

Maintenance, W.S. Dec-12

Source: J.P. Morgan estimates, Company data.

24

Sep-14 Mar-15 Sep-15


Feb-16
Jan-16
Jul-16

Jan-18
Jul-18

Oct

eSmall

Jul

Jul-20

Pepper

Apr

Jul-17

Jan

Jul-15

2018
Oct

Jan-15

Well serv ice

Jul

Sep-14 Dec-14

MENA

Apr

Maintenance

Mid

Jan

MENA

Shamal (M1)

2017
Oct

Enterprise (E3) Large

Jul

Apr-19

Aug-12 Feb-16 Aug-16

Apr

Apr-17

Maintenance

Jan

Apr-15

UK

2016
Oct

Maintenance

Endurance (E1) Large

2015
Jul

Endeav our (E2) Large North Sea

2014

Apr

Option

Jan

To

Oct

From

Jul

Type of work

Apr

Type Location

Jan

Rig

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Figure 20: GMS peer group valuation table


Company
Europe
Farstad Shipping
Gulf Marine Services
Prosafe
Siem Offshore
Solstad Offshore
USA
Gulfmark Offshore
Hornbeck Offshore
Seacor Holdings
Tidewater
Rest of World
Ezion Holdings
Mermaid Marine Australia

Company
Europe
Farstad Shipping
Gulf Marine Services
Prosafe
Siem Offshore
Solstad Offshore
USA
Gulfmark Offshore
Hornbeck Offshore
Seacor Holdings
Tidewater
Rest of World
Ezion Holdings
Mermaid Marine Australia

Share price
LCU

Shares in
issue (m)

Market value
LCU
$m

2015E

2013

EV ($m)
2014

2015

39.4
94.0
21.4
3.0
67.0

39
350
236
389
39

1,537
329
5,050
1,153
2,592

203
498
666
152
342

1,294
326
666
902
1,323

1,288
280
996
1,192
1,364

1,332
354
1,179
1,128
1,253

1,496
824
1,332
1,054
1,664

1,491
778
1,662
1,344
1,705

1,534
851
1,845
1,280
1,595

258
121
307
123
253

225
125
309
188
227

236
157
370
214
222

5.0
2.7
2.2
7.4
5.2

5.7
2.2
3.2
6.3
6.0

5.6
2.3
3.2
5.3
5.6

5.8
6.8
4.3
8.6
6.6

6.6
6.2
5.4
7.1
7.5

6.5
5.4
5.0
6.0
7.2

NOK
USD
USD
USD
NOK

21.1
21.8
71.6
31.0

26
36
18
50

555
793
1,263
1,542

555
793
1,263
1,542

440
625
328
1,455

489
870
362
1,331

464
813
279
1,481

995
1,418
1,591
2,996

1,044
1,663
1,625
2,872

1,018
1,606
1,542
3,022

164
257
235
369

172
290
244
437

160
330
278
459

2.7
2.4
1.4
3.9

2.9
3.0
1.5
3.0

2.9
2.5
1.0
3.2

6.1
5.5
6.8
8.1

6.1
5.7
6.7
6.6

6.4
4.9
5.6
6.6

USD
USD
USD
USD

1.2
1.0

1,579
369

1,823
358

1,374
294

920
251

1,033
270

1,007
208

2,294
545

2,408
564

2,381
502

159
58

297
124

415
150

5.8
4.3

3.5
2.2

2.4
1.4
Average
STD

14.4
9.4
7.5
2.7

8.1
4.6
6.4
1.0

5.7
3.3
5.7
1.0

USD
AUD

Share price
LCU

2010

2011

2013

2014E

2015E

EPS growth
2010-12 2013-15

2013A

PER
2014E

2015E

2013

DPS ($)
2014E

2015E

39.4
94.0
21.4
3.0
67.0

2.36
NA
0.81
0.03
0.10

2.60
0.07
0.71
-0.02
-0.98

1.41
0.16
0.80
-0.01
1.88

1.16
0.25
0.85
0.05
2.01

1.23
0.24
0.83
0.09
2.63

1.51
0.30
0.97
0.14
2.44

-23%
NM
-1%
NM
342%

14%
11%
7%
60%
10%

4.5
5.8
3.3
7.3
4.4

4.2
5.9
3.4
4.4
3.4

3.5
4.7
2.9
2.8
3.6

0.51
0.00
0.60
0.00
0.85

0.41
0.98
0.49
0.03
0.67

0.49
1.35
0.23
0.03
0.65

9.8%
0.0%
21.2%
0.0%
9.6%

7.8%
0.7%
17.1%
6.6%
7.6%

9.5%
0.9%
8.0%
7.7%
7.3%

21.1
21.8
71.6
31.0

1.86
1.29
9.94
4.89

1.90
-0.13
0.89
2.06

0.78
1.13
1.91
2.09

2.54
2.17
1.39
3.03

2.40
2.80
2.82
3.62

1.70
2.98
3.73
3.80

-35%
-6%
-56%
-35%

-18%
17%
64%
12%

8.3
10.1
51.5
10.2

8.8
7.8
25.4
8.6

12.4
7.3
19.2
8.1

1.00
0.00
1.00

1.00
0.00
1.00

1.00
0.00
1.00

4.7%
0.0%
NM
3.2%

4.7%
0.0%
NM
3.2%

4.7%
0.0%
NM
3.2%

1.2
1.0

0.04
0.17

0.06
0.20

0.07
0.23

0.12
0.27

0.12
0.20

0.17
0.18
Average
Average ex-Seacor
STD

33%
16%
26%

20%
-19%
16%

7.3
3.0
10.5
6.4
13.8

7.1
4.0
7.5
5.8
6.3

5.0
4.6
6.7
5.5
5.0

0.00
0.11
0.41

0.00
0.10
0.47

0.00
0.10
0.48

0.1%
14.4%
6.3%

0.1%
13.0%
6.1%

0.1%
12.5%
5.4%

EPS (US$)
2012

Net debt ($m)


2013A
2014E

EBITDA ($m)
2013A
2014E

2015E

ND / EBITDA
2013A
2014E

2015E

EV/EBITDA
2013A
2014E

Reporting
2015E Currency

Dividend Yield
2013A
2014E
2015E

Source: J.P. Morgan estimates, Bloomberg.

25

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Lamprell PLC

Overweight
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Market Cap ( bn)
Shares O/S (mn)

100
16 Jan 15
131
31-Dec-15
178-94
0.26
260

Lamprell PLC (LAM.L;LAM LN)


FYE Dec
Adj. EPS FY ($)
Bloomberg EPS FY ($)
Revenue FY ($ mn)
EBITDA FY ($ mn)
EBITDA Margin FY
EV/EBITDA FY
ROE FY
Adj P/E FY

2013A
0.12
0.08
1,092
77
7.0%
4.3
7.2%
12.8

2014E
0.27
0.25
1,046
119
11.4%
2.0
15.6%
5.6

2015E
0.17
0.19
941
94
10.0%
2.8
8.7%
8.7

2016E
0.23
0.22
1,035
111
10.7%
2.0
10.9%
6.5

Source: Company data, Bloomberg, J.P. Morgan estimates.

High revenue visibility, strong B/S protects downside; NDC options offer upside
High revenue visibility: On our estimates, Lamprell has 67% of its 2015 and
51% of its 2016 sales covered by its current backlog. Including walk-in work
(short duration rig refurbishment work) that Lamprell regularly wins during the
year, its coverage is a healthy 83% for 2015 and 65% for 2016.
Option exercise to secure 2016 revenue visibility: Lamprell has two Ensco
options and three NDC options that are due to expire in Q1 2015. Exercise of
these options could add another $938m to its backlog, which stood at $1.2bn at
the mid-year 2014 point. We see Lamprells exposure to the Middle East region,
where large NOCs benefit from lower cost of operations, as a positive. We see a
very high probability of NDC exercising these outstanding options, albeit a small
delay will not be a surprise.
Well-funded balance sheet, cash generation: Lamprells net cash at YE 2014 is
expected to be around $275m, down slightly from $280m at the mid-year point.
The cash position is expected to weaken marginally through 2015, but overall the
refinancing and rights issue appear fortuitously timed for a market downturn.
Reduce Dec-15 PT to 131p: Lamprell trades at a 2015 PE of 8.7x and an
EV/EBITDA of 2.8x vs. an European OFS average of PE of 8.4x and
EV/EBITDA of 4.6x. Lamprells YE14 cash balance of $275m (ex-prepayments)
is c.53% of its current market capitalization of $518m. We believe that
Lamprell's 39% EV/EBITDA discount to the European OFS average is
unjustified. We reduce our target 2016E PER from 10.0x to 8.5x which results in
a December 2015 price target of 131p (31% upside from current levels).
ENSCO options a key event in Q1. Lamprell was the second-best-performing
company in the European OFS space in 2014 (TSR -2%). However, YTD
performance has been in line with the sector. In our view, this is partly due to
concerns that the two options outstanding with ENSCO, due to expire during Q1
15, may lapse. If they are awarded, it could add a further $390m to its backlog, so
they are an important element of the near-term outlook.

26

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Petroleum Geo-Services

Underweight
Company Data
Price (Nkr)
Date Of Price
Price Target (Nkr)
Price Target End Date
52-week Range (Nkr)
Market Cap (Nkr bn)
Shares O/S (mn)

38.94
16 Jan 15
30.00
31-Dec-15
75.15-31.50
8.39
215

Petroleum Geo-Services (PGS.OL;PGS NO)


FYE Dec
2013A

2014E

2015E

2016E

2016E

Adj. EPS FY ($)


Bloomberg EPS FY ($)
Revenue FY ($ mn)
EBIT Margin FY
EV/EBITDA FY
P/BV (x) FY
ROE FY
Adj P/E FY

0.16
0.44
1,437
12.9%
2.8
0.54
1.7%
32.2

0.23
0.31
1,265
9.1%
3.4
0.53
2.3%
22.7

0.28
1,298
9.7%
4.2
0.52
2.8%
18.5

0.24
0.41
1,265
9.1%
3.7
0.52
2.5%
21.3

1.10
1.19
1,502
25.4%
2.2
0.54
12.0%
4.7

(Prev)

(Curr)

Source: Company data, Bloomberg, J.P. Morgan estimates.

Asset heavy profile to hurt in a possible multi-year seismic market downturn


Weak seismic market could last until 2016. We anticipate that oil companies
may refocus their capital spending objectives as they adjust to a low oil price
environment in 2015 and 2016. This could mean that the weak marine seismic
market witnessed in 2014 could continue well into 2016 as oil companies
conserve cash and put off exploration spending.
More vessel retirements may be needed. We believe a large portion of 2014
vessel retirements were in response to the weak seismic market during 2014. We
anticipate the seismic market to be far weaker in 2015 compared to 2014 and thus
expect further vessel retirements from the market as demand falls.
Consensus expected to fall further. While PGS has already guided to trough
contract margins in 2015, we expect margins in 2016 to also be under pressure. In
2015, we expect contract revenues to be down 14% and MC sales to be down
10% YoY. Overall we forecast 2014/15/16 EPS of $0.16/$0.23/$0.24 which is
28/8/17c below 2014/15/16 consensus. We retain our target 2015E target P/BV
multiple of 0.40x but increase our end-2015 PT to NOK 30 (23% downside) after
updating our $/NOK FX to the current spot rate.
Q4 2014 preview. PGS is scheduled to report its Q4 2014 earnings on 12
February. We adjust our 2014 numbers for PGS's vessel allocation in Q4 and now
forecast revenues of $413m (Bloomberg consensus: $412m), EBIT of $42m
(consensus $48m), net income of $(7.9)m (consensus $15.3m) and EPS of
$(0.04) (consensus of $0.11).

27

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Table 10: PGS - Quarterly estimates


Year end Dec

1Q13 2Q13 3Q13 4Q13

Total revenues

382

366

360

1502

293

337

394

413

1437

+8

-6

-6

-0

-1

-26

-12

+8

+15

-4

Operating costs

-193

-172

-150

-159

-673

-154

-166

-213

-200

-733

EBITDA

202

210

216

201

829

139

171

182

213

704

51

55

59

56

55

47

51

46

52

49

Gross depreciation and amortization

-59

-56

-66

-62

-244

-63

-72

-71

-69

-274

Depreciation capitalized to MC library

22

18

39

34

113

33

28

20

18

99

Amortization of MC library

-68

-60

-81

-93

-302

-64

-72

-54

-120

-309

-106

-99

-108

-120

-433

-94

-116

-105

-171

-485

Revenue growth (%)

EBITDA margin (%)

Total depreciation and amortization


Other operating income
Operating income before impairment
Impairment of long-lived assets

97

111

108

81

397

45

55

77

42

220

-15

-15

-9

-25

-34

97

111

108

66

382

45

46

52

42

186

Operating profit margin (%)

24.5

29.0

29.6

18.5

25.4

15.5

13.7

13.3

10.2

12.9

Operating profit growth (%)

+170

+28

-2

+10

+30

-53

-58

-52

-36

-51

Operating profit

Income (loss) from assoc companies

-2

-1

-3

-8

-13

-16

-2

-9

-1

-28

Net financials

-7

-12

-8

-14

-41

-17

-9

-17

-21

-64

Pre-tax profit

88

97

98

45

328

13

35

27

20

94

Tax es paid

-25

-26

-24

-15

-90

-8

-5

-19

-28

-60

Profit after taxes from continued operations

62

72

74

30

238

30

-8

35

Net income (loss) from discontinued operations


Net profit
Minority interests

72

74

30

238

30

-8

35

72

74

30

238

30

-8

35

15.8

18.7

20.3

8.4

15.9

1.6

8.8

2.1

-1.9

2.4

0.29

0.33

0.34

0.14

1.10

0.02

0.14

0.04

-0.04

0.16

+395

+57

-14

-24

+29

-93

-58

-89

-126

-85

Net profit margin (%)


Adj diluted EPS (c)
Adjusted EPS growth (%)

0
62
62

Net profit

Source: Company reports and J.P. Morgan estimates.

28

2013 1Q14 2Q14 3Q14 4Q14E 2014E

395

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Tecnicas Reunidas

Underweight
Company Data
Price ()
Date Of Price
Price Target ()
Price Target End Date
52-week Range ()
Market Cap ( bn)
Shares O/S (mn)

35.19
16 Jan 15
29.00
31-Dec-15
46.62-33.35
1.89
54

Tecnicas Reunidas (TRE.MC;TRE SM)


FYE Dec
2013A 2014E

2014E

2015E

2015E

2016E

2016E

Adj. EPS FY ()
Bloomberg EPS FY ()
Revenue FY ( mn)
EBITDA FY ( mn)
EBITDA Margin FY
EV/EBITDA FY
Adj P/E FY
ROE FY

2.51
2.48
3,131
170
5.4%
7.3
14.0
29.2%

2.94
3,527
196
5.6%
7.1
12.0
30.3%

2.66
2.76
3,362
180
5.4%
6.5
13.2
27.7%

3.26
3,777
217
5.8%
6.0
10.8
29.7%

2.88
2.92
3,602
196
5.4%
5.5
12.2
26.9%

(Prev)

2.38
2.46
2,854
157
5.5%
8.4
14.8
29.5%

2.53
3,146
172
5.5%
8.7
13.9
29.5%

(Curr)

(Prev)

(Curr)

(Prev)

(Curr)

Source: Company data, Bloomberg, J.P. Morgan estimates.

Challenging market outlook, bid pipeline shrinking Downgrade to UW


First signs of MENA project awards slowing. The oil price collapse has hurt
the cash flows of NOCs and we note the recent delays/cancellation of large EPC
projects on which Tecnicas was reportedly bidding like the $2.5bn Ras Tanura
refinery in Saudi Arabia and the $6.4bn Al-Karaana petrochemical project in
Qatar. We also note that Saudi Aramco, one of the biggest NOCs, has reportedly
asked its contractor (Saipem) to slow the execution of the Khurais oil field
expansion project (Source: MEED). We believe these are early indications that
NOCs in the Middle East are also carefully prioritizing their investments.
Probability-weighted order intake cut by 29%. We reduce our probabilityweighted order intake expectations for Tecnicas by 29% (from $4.5bn to $3.2bn)
as we remove the Ras Tanura and the Al-Karaana projects from the pipeline. We
also caution that while our earlier expectations were of these projects being
awarded in the next 6-12 months, given the current environment, we believe there
now is a higher likelihood that some of these projects get delayed and the actual
number of contract awards is lower.
Risk of backlog contraction high. We believe that the deterioration of the
investment climate in some of Tecnicas key markets like the Middle East,
Canada and Russia, and the shrinking of its bid pipeline has resulted in a high risk
that Tecnicas backlog will shrink from the record levels seen in 2014.
Margin recovery to be more gradual. As NOCs and IOCs get more cautious on
every dollar that they spend, we believe it is likely that these customers will start
challenging and holding back payments on variation orders (as already witnessed
by some of Tecnicas' peers). Tecnicas work on low-margin petrochemical
projects in Saudi Arabia (expected to reach its peak and complete in 2015) is also
expected to weigh on its margins.
Premium valuation unjustifiable. Tecnicas trades at a cash-adjusted 2015E
PER of 10.2x vs. the European OFS sector average of 8.4x based on Bloomberg
consensus data. We do not believe this 22% premium is justifiable. While we
acknowledge the strength of Tecnicas balance sheet, stable dividend and high
revenue visibility, we believe the recent oil price collapse and the deteriorating
investment outlook in the Middle East (as witnessed by recent project
cancellations) should affect its order intake. We expect the resulting fall in its
backlog would lead to a multiple compression as witnessed earlier in 2010-11
(Figure 21).

29

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Q4 2014 preview. Tecnicas is yet to announce the date of its Q4 2014 results.
We forecast revenues of 830m, up 11% YoY and 1% sequentially, operating
profit of 42m, also up 11% YoY and 1% sequentially, margin of 5.0%, net profit
of 35m, up 31% YoY and 7% sequentially, and EPS of 0.66.
Downgrade to Underweight. The deteriorating investment outlook in the Middle
East has resulted in the shrinking of Tecnicas' probability weighted bid pipeline
by 29%. We believe there is high risk of Tecnicas backlog contracting over the
coming year. We downgrade Tecnicas to Underweight and reduce our cash
neutral target 2015E PER multiple from 13.4x to 8.0x (in line with the target
2015 European OFS sector average). We reduce our end-2015 price target from
47 to 29 (downside of 17% from current levels).
Figure 21: TR - share price vs. backlog (RHA)
60

9000
8000
7000
6000
5000
4000
3000
2000

50
40
30
20

TR price (in )
Source: J.P. Morgan estimates, Bloomberg.

30

TR Backlog (in mn)

Dec '14

Jun '14

Dec '13

Jun '13

Dec '12

Jun '12

Dec '11

Jun '11

Dec '10

Jun '10

Dec '09

Jun '09

Dec '08

Jun '08

Dec '07

Jun '07

Dec '06

Jun '06

10

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Table 11: Tecnicas Reunidas - Quarterly estimates


Year end Dec
Oil & gas
Pow er
Infrastructure and industry
Revenues
Other operating income
Total revenues
Revenue growth (%)

1Q13
622
24
45
691
3
694
+11

2Q13
655
16
33
704
2
706
+8

3Q13
665
22
24
711
-3
708
+5

Operating costs
EBITDA
EBITDA margin (%)
EBITDA growth (%)

-654
40
5.8
+7

-668
38
5.3
-3

Impairment loss amortization


Fix ed asset depreciation
Operating profit
Operating profit margin (%)

-2
0
38
5.5

2013
2,614
79
153
2,846
8
2,854
+7

1Q14
695
14
20
728
1
729
+5

2Q14
710
16
25
750
1
751
+6

-668
40
5.6
-1

-707 -2,697
40
157
5.4
5.5
-2
+0

-689
40
5.5
+0

-710
41
5.5
+9

-776
44
5.4
+12

-785 -2,961
45
170
5.4
5.4
+12
+8

-2
0
35
5.0

-3
0
37
5.2

-2
0
38
5.1

-9
0
148
5.2

-3
0
37
5.1

-3
0
38
5.1

-3
0
41
5.0

-3
0
42
5.0

-12
0
158
5.1

2
1
3

3
0
2

2
-1
2

-1
0
-1

5
0
5

1
0
1

3
0
3

1
0
1

1
0
1

7
0
7

40
5.8
0
41
5.8

37
5.3
0
38
5.3

39
5.5
1
39
5.6

37
4.9
-4
33
4.4

153
5.4
-3
151
5.3

39
5.3
0
38
5.3

41
5.5
0
41
5.4

42
5.1
0
42
5.1

43
5.2
0
43
5.2

165
5.3
-1
164
5.3

0
41

0
38

0
39

0
33

0
151

0
38

0
41

0
42

0
43

0
164

-6
13.8
35

-5
13.3
33

-5
13.0
34

-6
19.0
27

-22
14.6
129

-6
15.9
32

-7
16.4
34

-9
21.5
33

-8
18.5
35

-30
18.1
135

Minority interests
Net profit
Net profit margin
Net profit growth (%)

0
35
5.0
+8

0
33
4.6
-4

0
34
4.8
-2

0
27
3.6
-24

0
129
4.5
-6

0
32
4.4
-7

0
34
4.5
+5

0
33
4.0
-4

0
35
4.2
+31

0
135
4.3
+5

# shares (m)
EPS ()
Net profit growth (%)

53.7
0.65
+8

53.7
0.60
-4

53.7
0.64
-2

53.7
0.50
-24

53.7
2.39
-6

53.7
0.60
-7

53.7
0.64
+5

53.7
0.61
-4

53.7
0.66
+31

53.7
2.51
+5

Net financial income


Foreign currency gains/losses
Net financials
PANF
PANF margin (%)
Associated income
Profit from ordinary activities
Profit margin (%)
Ex traordinary items
Profit before tax es
Tax pay able
% of PBT
Profit after tax

4Q13
672
18
51
741
6
746
+5

3Q14 4Q14E 2014E


775
780 2,960
25
30
85
19
20
83
819
830 3,128
2
0
3
821
830 3,131
+16
+11
+10

Source: Company reports and J.P. Morgan estimates.

31

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

TGS Nopec

Neutral
Company Data
Price (Nkr)
Date Of Price
Price Target (Nkr)
Price Target End Date
52-week Range (Nkr)
Market Cap (Nkr bn)
Shares O/S (mn)

172.30
16 Jan 15
165.00
31-Dec-15
210.70143.20
17.74
103

TGS Nopec Geophysical (TGS.OL;TGS NO)


FYE Dec
2013A 2014E

2014E

2015E

2015E

2016E

2016E

Adj. EPS FY ($)


Bloomberg EPS FY ($)
Revenue FY ($ mn)
EBIT Margin FY
EV/EBITDA FY
P/BV (x) FY
ROE FY
Adj P/E FY

2.54
2.49
915
38.9%
2.7
1.66
19.3%
9.0

2.23
871
37.0%
3.1
1.64
16.3%
10.2

1.87
1.83
744
36.0%
3.2
1.57
13.2%
12.2

2.36
898
38.2%
3.0
1.54
16.4%
9.7

1.97
1.95
767
37.0%
3.2
1.48
13.2%
11.6

(Prev)

2.60
2.53
883
43.8%
2.8
1.82
21.9%
8.8

2.51
878
40.3%
3.0
1.71
19.4%
9.1

(Curr)

(Prev)

(Curr)

(Prev)

(Curr)

Source: Company data, Bloomberg, J.P. Morgan estimates.

Possible end of earnings downgrade cycle captured in premium valuation


Conservative 2015 guidance in line with consensus: TGS introduced its 2015
guidance during its recent CMD. Although its revenue guidance of $750m
implies a Y-o-Y decline of 18%, it was in line with consensus expectations. We
believe TGSs revenue guidance implies a 24% fall in late sales. This may seem
excessive given late sales fell by only 5% in 2009 (the last oil price/capex
collapse), but we believe this is very feasible given the structural challenges
being faced by the seismic sector in todays environment. We now forecast
2014/15/16 EPS of $2.54/1.87/1.97 which is at a +2%/-2%/-2% difference to
consensus (Source: SME Direkt).
Exit from the PRM business: TGS announced its intention of exiting the
permanent reservoir monitoring business (PRM). We believe the PRM market
has been very slow to take off and management has shown willingness to exit this
low RoE business. This should help TGS better deploy its capital going forward.
Looking for opportunities to acquire cheap data: TGS is one of the only net
cash positive seismic companies in the market and it reiterated its intention to
acquire cheap seismic data sets from the market as and when the opportunity
arises.
MultiClient (MC) model expected to gain market share in the downturn. We
anticipate the MC data model could gain further market share in 2015/16 as oil
companies concentrate exploration more on the lower risk mature basins and opt
for cheaper non-exclusive MC data. This could add further pressure to the
shrinking contract seismic market. We believe if the seismic market were to
move away from the traditional contract market, it may lead to more pure MCfocused companies.
Valuation. We maintain our 2015 P/BV target multiple of 1.5x and update our
end-2015 price target to NOK 165 on the basis of the current spot $/NOK FX
rate. TGS currently trades at a cash-adjusted PE of 10.8x vs. the European OFS
average of 8.4x we believe this premium is appropriate given its net cash,
relatively asset light (no vessels owned) nature and high dividend yield albeit in a
structurally challenged sector.
Q4 2014 preview. TGS is scheduled to report its Q4 2014 earnings on 5
February. We forecast revenues of $298m with pre-funding of $71m and late
sales of $213m, EBIT of $109m (consensus $99m), net income of $77m
(consensus $68m) and EPS of $0.75 (consensus of $0.67).
32

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Table 12: TGS - Quarterly estimates


Year end Dec

1Q13

2Q13

3Q13

4Q13

2013

1Q14

2Q14

211

210

191

271

883

222

205

190

298

915

+10

-2

-22

-4

-5

+5

-2

-0

+10

+4
-153

Total revenues
Revenue growth (%)

3Q14 4Q14E 2014E

Operating costs

-48

-31

-33

-39

-150

-38

-33

-33

-49

EBITDA

163

179

158

233

733

185

171

157

249

762

77.1

85.4

82.9

85.7

83.0

83.0

83.7

82.7

83.6

83.3

EBITDA margin (%)


Depreciation and amortization

-3

-3

-4

-5

-16

-3

-4

-4

-4

-16

Amortization of MC library

-70

-78

-75

-107

-330

-87

-85

-81

-136

-390

Total depreciation and amortization

-74

-82

-79

-112

-346

-91

-89

-86

-140

-406

Operating income

89

98

80

120

387

94

82

72

109

356

Operating profit margin (%)

42.3

46.5

41.8

44.3

43.8

42.2

40.1

37.6

36.5

38.9

Operating profit growth (%)

+0

+4

-21

+2

-4

+5

-16

-10

-18

-11

Net financials

-3

-3

-3

-6

Pre-tax profit

87

95

82

118

381

97

84

72

110

363

Tax es paid

-26

-27

-26

-34

-112

-29

-23

-17

-33

-102

Profit after taxes from continued operations

60

68

56

84

269

68

61

55

77

261

Net income (loss) from discontinued operations


Net profit

60

68

56

84

269

68

61

55

77

261

Other comprehensive income (loss), net

-2

-2

-3

-6

-3

-12

-11

Net profit

58

66

58

81

263

65

66

42

77

250

27.5

31.6

30.3

29.9

29.8

29.1

32.3

22.3

25.9

27.4

0.58

0.66

0.54

0.81

2.60

0.66

0.59

0.53

0.75

2.54

-5

+5

-23

+0

-5

+13

-10

-35

+14

+328

Net profit margin (%)


Adj diluted EPS (c)
Adjusted EPS growth (%)

Source: Company reports and J.P. Morgan estimates.

33

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Appendix I: Methodology of the E&P capex


survey
Figure 22: Components of E&P spending
Capital spending

Midstream
(pipelines/transport)

Upstream (E&P)

Exploration
(expensed & cap)

Downstream

Development

Overhead & other

Refining

SG&A

Exploration
drilling

Development
drilling

Marketing

Capitalised
interest payments

Seismic
(contract/MC)

Production
facilities

Chemicals

Asset retirement
costs

Acquisitions
(corporate/land)

Field
acquisitions

LNG

Costs included

Costs excluded

Source: J.P. Morgan.

Our proprietary model of global organic upstream capital expenditure includes data for
99 of the worlds pre-eminent oil and gas exploration and production companies,
including 18 NOCs, 16 IOCs and 65 independent oil companies. In Figure 23 and
Figure 24, we show the capex split for these three groups.
Figure 23: Historical upstream capex split ($m)

Figure 24: Historical upstream capex split (%)


100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

600,000
550,000
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2003A

2005A

2007A
NOCs

Source: J.P. Morgan estimates.

IOCs

2009A

2011A

2013A

2003A

2005A

2007A
NOCs

Independents

IOCs

2009A

2011A

2013A

Independents

Source: J.P. Morgan estimates.

We record actual costs incurred (expensed and capitalized exploration costs and total
investment in the development and production of oil and gas assets) and exclude
acquisitions (land and corporate), capitalized SG&A and capitalized interest payments,
and any other non upstream components of capex which will not directly apply to the
provision of oil services and equipment, or materials used in the fabrication of
production-related infrastructure. The purpose of this analysis is to try and gauge the
change in global demand for oil services and equipment through revenue expectations
34

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

which are primarily defined by global upstream capital investment. The primary
components of this capex are (i) seismic, (ii) drilling and completion, (iii) subsea
umbilicals, risers and flow lines (SURF), and (iv) other production infrastructure
particularly large offshore production platforms.
Methodology for onshore versus offshore analysis
For the purpose of our simple index, we assign every company either an onshore or
an offshore status depending on the skew of their capex in either region. For
example, BP is assigned an offshore status since its E&P capex is heavily skewed
towards the offshore. All the companies that have been assigned an 'offshore' status
are marked with a '*' against their names in the Tables 13-17 of this report. The total
capex of the companies assigned an offshore status is then used to calculate the
trend in offshore capex. We adopt the same approach to derive our onshore capex
barometer. We caveat that this is by no means a perfect methodology, not least
because many of those companies tagged 'offshore' have onshore activities and vice
versa. However, it is the best that we can do because companies do not break down
their capital spending between onshore and offshore.

Appendix II: Detailed capex breakdown


Table 13: Historical and budgeted upstream capex data by company NOCs ($m)
Company

Country

CNOOC*
Ecopetrol
Gazprom
Gazprom Neft
MOL
ONGC
PDO
PDVSA
Pemex *
Petrobras*
Petrochina*
Petronas*
PGNiG
PTTEP*
Rosneft
Sinopec
Statoil*
YPF
Total NOC
YoY change (%)

China
Colombia
Russia
Russia
Hungary
India
Oman
Venezuela
Mex ico
Brazil
China
Malay sia
Poland
Thailand
Russia
China
Norw ay
Argentina

Acquired by

2003A 2004A 2005A 2006A


($m)
($m )
($m )
($m)
1,089 1,686 2,186 3,101
443
659
737
527
738
137
1,648
1,000
1,276
6,398
4,233
6,612
3,614
236
595
2,687
2,983
789
34,477

804
969 1,609
126
129
161
2,950 4,130 4,170
1,140 1,238 1,505
1,912 2,749 3,888
8,416 8,876 9,246
5,248 7,495 9,021
7,844 11,949 14,238
2,821 3,043 3,472
68
125
238 1,049
888
619 1,770 2,988
2,803 3,110 4,366
4,006 4,903 8,284
902 1,265 1,600
42,174 55,668 69,190
+22
+32
+24

2007A
($m)
4,074
1,281
4,460
2,679
230
4,186
2,382
6,912
10,610
11,464
17,784
6,022
702
1,198
4,786
7,164
9,547
1,626
97,108
+40

2008A
($m )
5,159
1,908
7,540
3,882
323
7,336
3,089
12,836
11,546
17,153
23,951
10,141
603
1,502
6,653
9,834
10,901
2,117
136,474
+41

2009A
($m)
6,254
2,771
7,695
2,870
535
7,209
2,806
8,124
13,510
18,936
19,685
7,496
616
2,023
6,154
9,489
11,727
1,172
129,071
-5

2010A
($m)
5,071
3,913
7,795
3,264
529
8,665
2,736
6,897
14,234
21,354
25,114
6,937
727
1,643
6,650
9,404
11,630
1,742
138,305
+7

2011A
($m )
6,424
5,646
8,678
3,224
489
8,940
2,657
9,549
13,179
21,425
26,096
6,847
855
4,215
9,282
11,155
15,856
2,329
156,845
+13

2012A
($m )
9,193
6,049
7,622
3,883
536
6,413
3,800
13,793
14,574
24,518
34,759
10,050
515
2,834
9,623
14,868
19,020
2,430
184,480
+18

2013A
($m)
14,912
6,537
9,957
5,660
684
8,584
4,300
12,750
17,090
28,261
38,980
12,216
516
2,945
11,580
14,444
20,444
5,084
214,944
+17

2014E
($m )
19,723
6,598
8,500
6,200
910
7,881
4,300
15,000
22,813
27,136
36,619
11,760
544
2,936
10,000
9,737
20,333
4,500
215,490
+0

2015E 2015E vs.


($m ) 2014E (%)
19,723
0
4,600
-30
8,500
0
5,000
-19
1,040
14

24,650
27,136
35,551
9,201
765
3,071
12,200
9,696
20,333
4,500
185,966
-1.2

8
0
-3
-22
41
5
22
0
0
0

Source: Company reports; note where possible are data is based on costs incurred (capitalized and expensed exploration and development costs) and excluding (i) corporate acquisitions, (ii) land
acquisitions, (iii) capitalized interest, (iv) overhead costs and any non-cash charges including asset retirement costs. * Categorized as Offshore in our Onshore versus Offshore barometer.

35

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Table 14: Historical and budgeted upstream capex data by company IOCs ($m)
Company

Country

Acquired by

Bashneft
BP*
BG Group*
Chev ron*
ConocoPhillips*
ENI*
Ex x on Mobil*
GALP*
Inpex *
Lukoil
Marathon*
OMV*
Repsol*
Roy al Dutch Shell*
Tatneft
TOTAL*
Total IOC
YoY change (%)

Russia
UK
UK
US
US
Italy
US
Portugal
Japan
Russia
US
Austria
Spain
UK/Netherlands
Russia
France

2003A 2004A 2005A


($m)
($m )
($m )
258
8,364 8,309 10,149
1,109 1,733 1,853
5,675 6,321 8,389
4,497 4,364 6,001
6,335 6,054 5,728
10,602 9,863 11,513
45
93
102
1,091 1,321 1,695
2,036 2,409 3,045
1,188 1,000 1,466
2,205
325
661
1,309 1,445 2,312
9,532 9,741 10,851
695
528
318
4,932 5,934 7,153
59,615 59,440 71,494
-0
+20

2006A
($m)
258
12,562
2,241
11,961
10,184
5,984
13,636
127
1,861
5,131
1,794
1,009
2,682
15,027
443
8,304
93,205
+30

2007A
($m)
313
14,597
3,325
16,129
12,172
10,439
13,066
264
2,529
7,158
17,527
2,158
3,536
20,051
761
10,974
134,999
+45

2008A
($m )
459
17,316
4,528
17,879
13,239
14,623
19,734
287
3,133
7,967
4,029
2,779
3,883
20,821
941
12,644
144,261
+7

2009A
($m)
273
15,298
4,346
14,085
10,181
12,947
20,241
269
3,092
4,815
3,352
1,807
2,946
24,224
518
12,980
131,373
-9

2010A
($m)
273
14,846
5,487
17,552
9,823
13,351
26,265
430
2,788
5,034
3,305
1,797
3,371
21,441
616
12,807
139,186
+6

2011A
($m )
490
15,897
7,295
18,549
12,100
13,167
27,153
415
3,542
6,690
3,016
2,106
2,940
21,138
672
18,979
154,148
+11

2012A
($m )
309
19,857
7,955
23,423
16,861
13,744
30,343
782
8,180
9,285
5,383
1,958
2,866
31,148
827
20,382
193,303
+25

2013A
($m)
962
21,628
9,410
30,633
20,046
14,755
30,779
932
9,492
11,973
5,139
3,298
3,098
35,796
825
26,915
225,681
+17

2014E
($m )
1,844
20,400
9,000
35,800
16,700
14,731
32,900
1,194
10,338
11,600
5,777
4,138
3,581
36,000
700
20,800
225,502
-0

2010A 2011A 2012A 2013A


($m)
($m )
($m )
($m)
91
29
919
722
230
372
419
535
3,868 6,191 5,864 6,378
491
650
994 1,199
2,174 2,199 3,012 2,939
725 1,266 1,489 1,674
4,701 4,445 3,294 2,648
138
246
197
314
2,653 3,698 5,270 4,197
169
257
152
416
909 1,598 2,125
1,805 2,527 3,059
1,058 1,766 1,836
859

2014E
($m )
532
704
7,306
756
2,227
1,765
2,550
477
3,621

2015E 2015E vs.


($m ) 2014E (%)
1,840
0
20,900
2
8,000
-11
34,000
-5
13,500
-19
13,060
-11
30,000
-9
1,694
42
6,569
-36
10,000
-14
4,400
-24
3,459
36,000
900
19,120
203,443
-8.1

-3
0
29
-8

Source: Company reports. * Categorized as Offshore in our Onshore versus Offshore barometer.

Table 15: Historical and budgeted upstream capex data by company Canadian independents ($m)
Company
Athabasca Oil Corp.
Canada
Bay tex Energy
Canada
Canadian Natural Resources Canada
Canadian Oil Sands
Canada
Cenov us
Canada
Crescent Point Energy
Canada
EnCana
Canada
Canada
Gran Tierra
Husky Energy
Canada
Lone Pine Resources
Canada
MEG Energy
Canada
Nex en
Canada
Penn West Petroleum
Canada
Petro-Canada
Canada
Suncor
Canada
Talisman
Canada
Vermilion Energy
Canada
Western Oil Sands
Canada
Total Canada Independents
YoY change (%)

Acquired by

2003A 2004A 2005A 2006A


($m)
($m )
($m )
($m)
119
1,389

66
1,772
751

102
3,888
742

105
5,774
321

15
4,150

21
5,197

30
6,387

94
6,151

1,234

1,560

2,072

2,105

Split from Encana

Delisted, priv ate co.


CNOOC
Suncor

Marathon

2015E 2015E vs.


($m ) 2014E (%)
218
-59
513
-27
5,121
-30
443
-41
1,979
-11
1,213
-31
2,800
10
308
-35
2,176
-40

1,086
255
884 1,273 2,148 2,295
399
395
355
473
700
523
1,128 1,332 1,769 1,709
1,057 1,420 1,908 2,529
4,621 5,475 5,630 5,240 5,056 4,644
1,431 1,763 2,447 3,508
3,763 4,388 3,837 3,218 3,000
57
52
94
119
325
496
452
536
611
439
88
30
43
202
11,950 15,632 21,985 25,383 27,206 33,551 20,093 27,230 34,914 38,023 32,585 30,392 20,632
+31
+41
+15
+7
+23
-40
+36
+28
+9
-14
-7
-24.7

Source: Company reports * Categorized as Offshore in our Onshore versus Offshore barometer.

36

2007A 2008A 2009A


($m)
($m )
($m)
8
132
174
126
5,423 5,962 2,700
170
264
359
734
173
351
281
5,655 6,417 4,540
47
77
2,026 2,823 1,746
85
239
2,476 2,521 2,276
588
863
548
1,869 2,975
4,620 6,931 3,219
3,909 4,048 2,997
164
175
157

-77
-25
-8
-28

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Table 16: Historical and budgeted upstream capex data by company US independents ($m)
Company
Anadarko*
Apache
Berry Petroleum Company
Bill Barrett
Burlington Resources
Cabot Oil & Gas
Callon Petroleum
Chesapeake
Cimarex Energy
Clay ton Williams Energy
Cobalt*
Comstock Resources

US
US
US
US
US
US
US
US
US
US
US
US
US
Consol Energy
Continental Resources
US
Denbury
US
Dev on Energy
US
El Paso
US
Encore
US
Energy Partners Limited*
US
Energy XXI*
US
EOG Resources
US
Ev ergreen Resources
US
Ex co Resources
US
Forest Oil Corporation
US
Freeport-McMoran
US
Goodrich Petroleum
US
Hess*
US
Houston Ex ploration
US
Kerr-McGee*
US
Kodiak Oil & Gas
US
Laredo Petroleum
US
Magnum Hunter
US
Mariner Energy
US
Murphy Oil Corp*
US
New field Ex ploration Company
US
Noble Energy Inc
US
Occidental
US
Patina
US
PDC Energy
US
Penn Virginia Corporation US
PetroQuest
US
Pioneer Natural Resources US
Plains Ex ploration & Production
USCompany
Pogo Producing Company US
QEP Resources
US
Rosetta Resources
US
Southw estern Energy
US
Spinnaker Ex ploration Company
US
St. Mary
US
Stone Energy Corporation* US
Sw ift Energy
US
Tom Brow n
US
Unit Corp
US
Unocal*
US
Vintage Petroleum
US
Venoco
US
Westport Resources Corp US
XTO Energy
US
Total US Independents
YoY change (%)

Acquired by

Linn Co. LLC


ConocoPhilips

Kinder Morgan
Denbury
Energy XXI

Pioneer

Forest Oil
Anardarko
Whiting Petroleum

2003A 2004A
($m)
($m)
2,559 2,861
1,453 2,341
43
72
136
192
1,357 1,560
160
221
50
58
590
996
151
279
77
118

Encana

2013A
($m)
6,835
9,563

2014E
($m)
8,265
8,500

458

425

1,332
176
37
251

1,610

2,657

3,270

53
500

194
595

447
764

693
1,320

300
534

347
679

855
702

403
662

270
659

41
1,501
310
2,861
2

158
1,976
480
3,000
9

255
2,966
498

287
3,324

352
3,657

225
2,865

250
3,507

307
5,998

231
7,879

220
6,095

420
813
3,400
325
5,800

30

41

11

27
328

67
502

261
724

810
925

994
696

940
1,225

525

-57

1,200
4,090
6,600

-25
-17
-20

195
2,395
606
188
186

848
112
8
280
20
1,247
228
2,559

245
132
591
728
500
1,498
230
37
103
53
557
199
464
345
70
227
249
229
297
106
288
83
1,880
307

433
18
3,159
490
119
81
320
228
357
283
3,511
864
287
11
144
3,160

697
63
5,204
877
246
80
403
531
855
647
4,979
962

817
94
7,028
1,371
356
140
580
595
1,913
1,141
5,574
1,579

881
61
8,078
1,524
361
334
520
470
2,833
1,074
6,359

1,115
184
4,765
1,402
222
757
342
725
3,237
860
5,274

1,500
215
5,200
1,950
401
800
505
1,005
4,550
960
5,227

57
278
4,969

101
511
6,161

223
802
6,435

349
785
6,290

2015E 2015E vs.


($m) 2014E (%)
6,042
-27
5,184
-39

281
3,426
667
326
280

158
2,567
1,230
99
106

137
280
145
285
113
222
70
1,664
172

2011A 2012A
($m)
($m)
4,994 6,128
5,695 8,877
545
731
628
787

328
274
499
586
5,508
1,358
368
308

158
106

551
99
5,120
904
215

2009A 2010A
($m)
($m)
4,115 4,545
3,145 3,894
138
323
333
441

227
153
290
480
4,624
1,154
349
383

143
83

159
71
573
538
527
1,140
Noble Energy
176
31
80
27
572
Freeport-McMoran
110
Plains E&P Co.
339
236

2007A 2008A
($m)
($m)
3,639 4,326
4,201 5,425
284
395
413
557
668
190
5,734
1,303
311
41
312
447
707
569
6,962
1,573
619
171
264
4,282

85
84

Cimarex
Apache

Norsk Hy dro

2005A 2006A
($m)
($m)
2,881 4,382
3,368 3,519
120
291
314
339
2,359
311
456
69
155
1,789 3,115
601
984
184
250

1,565

4,040
1,555

-22
-20

850
307

6
-39

2,700
550

-41
-43

410
484
7,380

5,960

-19

3,500
175
5,800

3
-46
0

172
944
971
890
2,019

436
1,027
1,670
1,303
2,755

545
1,335
1,891
1,578
3,155

765
1,744
1,903
1,730
4,441

417
1,690
1,266
1,142
2,986

607
1,770
1,574
2,006
3,716

2,465
2,086
2,931
6,329

3,798
1,837
3,537
8,327

4,261
2,021
4,059
7,164

3,800
1,600
4,923
8,262

82
139
106
991
430
457
464
89
327
235
319
360
175

135
236
140
1,394
592
899
649
174
631

213
413
193
1,712
1,100
1,015
667
269
1,224

286
549
275
1,300
1,097

93
157
39
363
1,582

162
311
79
984
1,082

306
398
133
2,022
2,049

254
357
109
2,789
2,077

392
439
96
2,759

647
752
140
3,100

557

-14

168
3,255

20
5

1,120
188
1,345

834
90
1,257

1,135
282
1,379

1,304
469
1,506

1,324
625
1,468

1,455
874
1,685

1,775
1,200
2,207

1,660
750
2,435

-6
-38
10

490
370
262

697
145
366

675
302
496

376
200
89

813
227
335

1,468
414
511

1,567
382
639

1,519
622
460

2,055
895
395

850
113

-5
-72

142
218
273
393
185
328
436
437
458
718
Chev ron
1,930
Occidental
250
Delisted, priv ate co.
168
292
254
128
174
208
192
Kerr-McGee
298
370
Ex x on Mobil
460
584 1,387 2,145 2,756 3,833 2,946
24,636 29,372 37,899 44,042 52,627 63,588 41,314 52,369 73,705 87,109 80,363 93,168 60,431
+19
+29
+16
+19
+21
-35
+27
+41
+18
-8
+16
-20.0

Source: Company reports * Categorized as Offshore in our Onshore versus Offshore barometer.

37

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Table 17: Historical and budgeted upstream capex data by company International independents ($m) and Independents Totals
Company
Afren
Alliance Oil
Cairn Energy
EnQuest*
Genel Energy
Lundin Petroleum*
Norsk Hydro*

Nov atek
Oil Search
Ophir Energy
Pacific Rubiales
Premier Oil*
Range Resources
Santos
Tullow
Woodside*
Total Intl. Independents
YoY change (%)
Total Independents
YoY change (%)

Acquired by
UK
Russia
UK
UK
UK
Sw eden
Norw ay
Russia
PNG
UK
Colombia
UK
Australia
Australia
UK
Australia

Alliance Group

Statoil

2003A 2004A 2005A 2006A


($m)
($m )
($m )
($m)
2
122

19
170

110
283

113
273

35
1,452
76
76

162
1,574
228
80

248
2,797
192
256

377
3,726
170
266

70
103
487
75
324
2,822

92
176
683
177
557
3,918
+39

133
313
731
351
1,203
6,616
+69

138
535
974
583
1,467
8,623
+30

581

695

519

691
320

1,252
338

529
581

92
257
170
215
300
815
926
597
1,093 1,361 1,219
735
879 1,185
2,412 4,449 4,265
7,366 11,453 10,378
-15
+55
-9

2010A 2011A 2012A 2013A


($m)
($m )
($m )
($m)
437
576
465
717
316
604
360
1,060 1,370
139
418
196
278
803
984
15
229
559
385
670
871 1,702

2014E
($m )
845

2015E 2015E vs.


($m ) 2014E (%)
836
-1

530
1,200
650
2,080

317
863
350
1,450

-40
-28
-46
-30

793
868 1,030 1,310 1,600 1,500
1,357 1,561 1,845 1,660 1,065
58
79
359
389
600
325
759 1,096 1,650 1,892 2,300 1,200
512
656
756
864 1,160
820
892 1,365 1,466 1,236 1,225 1,440
1,728 3,171 3,478 4,220 3,153 1,637
1,235 1,432 1,870 1,800 2,100 1,900
3,636 3,429 1,528
586 1,120
13,364 17,170 16,849 18,338 19,628 12,638
+29
+28
-2
+9
+7
-27.5

-6

39,408 48,921 66,501 78,048 87,199 108,592 71,785 92,962 125,789 141,981 131,286 143,188 93,672
+24
+36
+17
+12
+25
-34
+30
+35
+13
-8
+9
-22.2

Source: Company reports * Categorized as Offshore in our Onshore versus Offshore barometer.

38

2007A 2008A 2009A


($m)
($m )
($m)
287
188
56
176
83
400
619
913

-46
-48
-29
18
-48
-10

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Investment Thesis, Valuation and Risks


Cape (Neutral; Price Target: 203p)
Investment Thesis
We see the current low oil price environment persisting for the next couple of years.
We believe this will lead to pressures on the margins of offshore contractors and also
lead to delays to some discretionary spending work. Capes typically low revenue
visibility leaves it highly reliant on order intake during the year. We see this as a risk
given the low oil price and falling capex environment. Capes revenues from longterm maintenance contracts (c.65% of group revenues) should provide it with some
cushion to weather this weak market. We also acknowledge Capes robust cash
generation capabilities and stable dividend. We believe Capes risks are adequately
captured by the market at these current levels; we thus downgrade it to Neutral.
Valuation
Our Dec-15 price target of 203p is derived from our 2015E EPS of c.27p and our
target PER of 7.5x. We believe this multiple adequately captures the headwinds that
the company is facing and is at a slight discount with the average European OFS
sector.
Risks to Rating and Price Target
Upside risks to our Neutral view: (i) fewer project delays affecting UK offshore
revenues than expected; (ii) strong order intake during the year. Downside risks are:
Severe revenue contraction in the UK offshore market; (ii) project delays and margin
contraction in the MENA region; (iii) Further provisions on legacy contracts.

CGG (Underweight; Price Target: 3.80)


Investment Thesis
We believe the seismic market is in the midst of a multi-year downturn. We see
seismic vessel owners like CGG facing pricing and utilization pressures. We expect
CGGs Acquisition and Equipment segment to continue being a drag on its earnings
in the medium term. The deteriorating market outlook also increases the risk of
further goodwill/MC library and vessel impairments. We downgrade to Underweight.
Valuation
We value CGG at a Dec 15 price target of 3.80 which is based on our SOTP
valuation. We value CGGs GGR segment at a 2.5x EV/EBITDA multiple (inline
TGS's bottom cycle average). We value CGG's Acquisition segment at 0.9x the book
value of its vessels and vehicles. We value the Equipment business at a multiple of
4.5x (at a slight premium to its equipment peers).
Risks to Rating and Price Target
Key upside risks to our rating and price target include: 1) seismic market being better
than expected in 2015; 2) oil prices increasing materially from current levels, and
3) award of multiple mega-crew tenders in the Middle East.

39

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Gulf Marine Services (Overweight; Price Target: 120p)


Investment Thesis
Gulf Marine Services Plc (GMS) has a high exposure to the Middle East region
where we do not expect the NOCs to slow down the production of oil. We estimate
91% of 2015 revenues are covered by its current backlog if we include options and
other non-charter income. GMS has strong cash generation ability and has a wellfunded balance sheet. We do not see market placing by its principal shareholders as a
risk at these price levels. We consider GMS to be well positioned with its regional
advantage, high revenue coverage and strong balance sheet to weather the expected
weak market conditions. We upgrade GMS to Overweight.
Valuation
Our Dec-15 price target of 120p is based on a 2015E target PE of 6.0x. This is at a
c.10% premium to its peer group (as defined in our initiation report) which we
believe is justified due to GMSs advantaged business model, high revenue visibility,
high EBITDA margin and low tax rate
Risks to Rating and Price Target
Downside risks include: (i) Reduced vessel utilization; (ii) pressure on margins due
to increased competition; and (iii) contract cancellation

Lamprell PLC (Overweight; Price Target: 131p)


Investment Thesis
We believe that Lamprells back to basics strategy is paying off, with clear
evidence of improving execution and operational efficiency gains now apparent. We
have seen a marked recovery in profitability and Lamprells balance sheet is more
robust following the refinance and rights issue.
However, the deteriorating market outlook is likely to be a headwind for the shares
through 2015, the collapse in the oil price will affect the entire service space, with an
expectation that some projects will be deferred and cancelled. In the near term this is
likely to trim the absolute upside potential for Lamprell, although we still see
potential for sector relative outperformance given high exposure to the Middle East,
traditionally one of the lowest cost operating environments and also to the local
National Oil Companies, which we anticipate will continue to invest through the
cycle.
Valuation
Our Dec-15 PT of 131p is based on our 2016E EPS of 23.4c and a target PER of 8.5x.
Our target price would equate to a PER multiple of 11.4x in 2015. We believe this
future multiple, which is longer dated than usual, has justification given the
schedule management has set out to implement its new strategy of accelerating
growth in its core markets, but now takes into account a weaker macro backdrop.
Risks to Rating and Price Target
Lamprells share price is heavily dependent on contract awards and project
execution. The main downside risks to our thesis are: 1) Lamprell wins substantially
fewer contracts than we forecast, 2) the supply chain issues recur, causing project
timetables to slip, 3) increased competition from Asia, specifically Chinese yards,
and 4) a slowdown in offshore spending by Oil & Gas companies.
40

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Petroleum Geo-Services (Underweight; Price Target: Nkr30.00)


Investment Thesis
We believe the current weak seismic environment will extend well into 2015 this
will likely put PGSs near term earnings at risk. We see PGS achieving lower-thanaverage pre-funding in 2014/15 due to the Triton MC survey. The weak seismic
market may also put downward pressure on contract pricing, late sales and increase
the risk of impairments of its MC library. We believe PGSs cost leadership and
relatively strong balance sheet should protect its PBV multiple from de-rating further
than its 2009 lows.
Valuation
Our Dec-15 NOK30 price target is based on a target 2015 P/BV multiple of 0.40x
and a BV of $9.7. This multiple is inline with its 2009 lows. We anticipate further
multiple compression from current levels as the market weakness in 2015/16
becomes more apparent.
Risks to Rating and Price Target
Key upside risks that could keep our rating and price target from being achieved
include: 1) seismic market being better than expected in 2015, 2) Triton MC survey
achieves better than expected pre-funding levels, and (3) oil prices increasing
materially from current levels.

Tecnicas Reunidas (Underweight; Price Target: 29.00)


Investment Thesis
We see the first signs of the Middle East market slowing down following the
cancellation/postponement of few mega projects in Saudi Arabia and Qatar. This has
resulted in Tecnicas bid pipeline shrinking considerably and reduced our
probability-weighted order intake estimations. We see increasing likelihood of more
projects getting delayed/cancelled as even NOCs start carefully reconsidering their
investments in this oil price environment. We see high risk of Tecnicas backlog
shrinking in 2015 and thus believe its current premium valuation is unjustifiable. We
downgrade to Underweight.
Valuation
Our Dec-31 2015 price target of 29.0 is based on a cash neutral target 2015E PER
of 8.0x. Our target PER is in line with the target 2015 European OFS sector average.
Although Tecnicas has a very strong balance sheet and a record backlog, we see
increasing risks on future order intake for the company. Considering the order
outlook for Tecnicas, we do not believe a premium multiple is justifiable.
Risks to Rating and Price Target
The main upside risks are: (i) Strong order intake in 2015; and (ii) margin expansion
in 2015.

TGS Nopec (Neutral; Price Target: Nkr165.00)


Investment Thesis
TGS has pioneered an asset-light business model, choosing to lease rather than own
seismic vessels. Although TGS tends to perform well during weak seismic cycles, we
believe that the demand-driven weakness in this cycle means that MC sales may
41

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

come under pressure and will also increase the risk of impairments of its MC library.
The weak seismic market should also give TGS the opportunity to add quality data to
its MC library at lower costs. In the long term, we believe this can help deliver higher
MC sales to investment returns. We expect TGS to continue its buyback program in
2015 and grow its dividend using its strong balance sheet.
Valuation
Our Dec-15 NOK165 per share price target is based on a target 2015 P/BV multiple
of 1.5x and a BV of $14.2. Our 1.5x target 2015 P/BV multiple is at a 7% discount to
current levels, as we expect further multiple compression into 2015 as the market
weakens. TGSs asset light model, net cash position, strong dividend yield and share
buyback plan should help provide a floor to excessive multiple compression.
Risks to Rating and Price Target
Key upside risks that could keep our rating and price target from being achieved
include: 1) seismic market being better than expected in 2015, 2) oil prices increasing
materially from current levels budgets, 3) greater-than-expected interest in the key
multi-client regions US Gulf of Mexico, Norway and Barents Seas;
Downside risks to our rating and price target include: 1) lower pre-funding than
expected, 2) delays to licensing rounds leading to lower late sales, and 3) increased
investments in MC surveys with lower pre-funding than average thus depressing
short-term earnings.

42

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Cape: Summary of Financials


Profit and Loss Statement
in millions, except per share data
Revenues
% Change Y/Y
EBITDA (adjusted)
a.
a.
EBITDA Margin (%)
a.
Depreciation
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Others and exceptional items
Associate Income
Earnings before tax
Tax
as a % of EBT
Minority Interest
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
Balance sheet
in millions, except per share data
Total non-current assets
Net Intangibles
PPE
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets

FY12
746
3.3%
42

5.6%

Ratio Analysis
FY13 FY14E FY15E FY16E in millions, except per share data
697
660
663
668 Shares in issue (mn)
(6.6%) (5.3%) 0.4% 0.8% DPS (cents)
58
64
68
70 Dividend payout ratio

8.3%

(14)
(18)
28
41
28
41
3.7%
5.8%
(10)
(10)
(161)
(31)
0
0
(143)
0
(19)
(3)
(13.4%) 1421.1%
(2)
0
(207)
(7)
15
29
(71.2%)
86.7%
(171.84)
(5.67)
12.69
23.58
(70.9%)
85.7%
FY12
232
117
91
141
351
100
250
583

FY13
222
114
81
141
291
105
187
514

Total Current Liabilities

182

144

Non-current liabilities

231

237

Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

412
167
4
583
63
230

380
131
3
514
60
191

Valuation
9.7% 10.3% 10.5% P/E adjusted
P/BV
(16)
(18)
(18) P/CF
49
50
52 EV/CE
49
50
52 EV/Sales
7.4% 7.5% 7.8% EV/EBITDA
(9)
(10)
(10) FCFF Yield
(3)
(1)
(1) Dividend Yield
0
1
1
38
40
42
(8)
(8)
(9)
21.2% 21.0% 21.0% Ratios
(1)
(1)
(1) Net Debt (Cash) / Equity
28
30
32 Net Debt / EBITDA
32
33
35 ROE
12.9% 2.3% 5.7% ROCE
23.00 24.91 26.15
26.48 27.10 28.64 Market Cap
12.3% 2.3% 5.7%
Cash flow statement
FY14E FY15E FY16E in millions, except per share data
263
265
267 Profit before tax
113
113
113 Depreciation & impairment
123
125
127 (Increase)/Decrease in WC
140
139
139 Other CFO
286
296
309 Cash flow from operations
69
79
99 Capex
217
218
210 Other CFI
549
561
576 Cash flow from Investing activities
Dividends paid
136
135
134 Other financing CF
Cash flow from Financing Activities
268
268
268 Net Change in Cash
FCFF
404
403
402 Operating CFPS
142
155
169 FCFF per share
3
4
4
549
561
576
126
115
93
268
269
263

FY12 FY13 FY14E FY15E FY16E


121 121
121
121
121
14.00 14.00 14.00 14.00 14.00
NM
NM 61.7% 56.9% 54.2%

15.1
8.1
7.3
7.1
6.7
1.4
1.8
1.6
1.5
1.4
8.0
6.5
39.6
4.8
4.0
0.9
1.4
1.6
1.3
1.2
0.4
0.4
0.5
0.5
0.5
7.0
5.0
5.6
5.1
4.7
11.3% 11.2% (18.9%) 15.8% 20.1%
7.3% 7.3%
7.3% 7.3% 7.3%

37.1% 45.2%
1.5
1.0
5.4% 19.4%
6.6% 15.4%

87.3% 72.5% 53.6%


2.0
1.7
1.3
23.9% 22.4% 21.7%
16.7% 14.7% 15.4%

233

FY12 FY13 FY14E FY15E FY16E


(143)
0
38
40
42
15
18
16
18
18
15
10
(40)
(0)
8
143
8
(7)
(8)
(9)
29
36
6
49
59
(11) (18)
(57)
(20)
(20)
(4)
3
4
0
0
(15) (15)
(54)
(20)
(20)
(17) (17)
(17)
(17)
(17)
8
(1)
30
(1)
(1)
(9) (18)
13
(18)
(18)
3
1
(35)
11
22
26
26
(45)
37
47
0.24 0.29
0.05 0.40 0.48
21.77 21.46 (36.35) 30.36 38.62

Source: Company reports and J.P. Morgan estimates.

43

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

CGG: Summary of Financials


Profit and Loss Statement
$ in millions, except per share data
Revenues
% Change Y/Y
EBITDA (adjusted)
a.
EBITDA Margin (%)
a.
Depreciation
Amortization of MC library
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Others and exceptional items
Earnings before tax
Tax
as a % of EBT
Associate Income
Minority Interest
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
Balance sheet
$ in millions, except per share data
Total non-current assets
Net Intangibles
Goodwill
PPE
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets

FY12
3,414
7.6%
1,036

FY13 FY14E FY15E


3,768 3,022 2,776
10.4% (19.8%) (8.1%)
1,194
908
834

30.4%

31.7% 30.0% 30.0%

(366)
(1,213) (560) (390)
(341)
(399) (486) (351)
329
(417) (138)
93
329
(417) (138)
93
9.6% (11.1%) (4.6%) 3.3%
(157)
(192) (200) (185)
(20)
0
(49)
0
153
(609) (387)
(93)
(99)
(83)
(79)
32
64.6% (13.6%) (20.5%) (35.0%)
20
(7)
(64)
(5)
(17)
(8)
(7)
(5)
74
(699) (530)
(65)
74
(699) (530)
(65)
(377.9%) (1041.8%) (24.2%) (87.7%)
0.46
(3.95) (2.99) (0.37)
0.45
(3.95) (2.99) (0.37)
(358.1%) (970.8%) (24.3%) (87.7%)
FY12
4,859
935

FY13 FY14E FY15E


5,909 5,676 5,593
1,272 1,372 1,449

2,416

2,483

2,483

2,483

1,160
350
3,473
1,520
1,953
8,333

1,558
596
2,354
530
1,824
8,263

1,281
540
1,780
185
1,595
7,457

1,126
535
1,741
248
1,493
7,334

Total Current Liabilities

1,222

1,544

1,173

1,113

Non-current liabilities
LT borrowings
Other LT liabilities

2,519
2,253
266

2,829
2,496
333

2,916
2,583
333

2,914
2,581
333

Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

3,741
4,493
99
8,333
785
5,278

4,373
3,800
90
8,263
2,218
6,018

4,089
3,270
98
7,457
2,448
5,718

4,027
3,205
103
7,334
2,383
5,588

Source: Company reports and J.P. Morgan estimates.

44

FY16E
2,738
(1.4%)
877

Ratio Analysis
$ in millions, except per share data
Shares in issue (mn)
DPS (cents)
Dividend payout ratio

32.0% Valuation
P/E adjusted
(365) P/BV
(335) P/CF
177 EV/CE
177 EV/Sales
6.5% EV/EBITDA
(186) FCFF Yield
0 Dividend Yield
(9)
3
(35.0%)
15 Ratios
(5) Net Debt (Cash) / Equity
9 Net Debt / EBITDA
9 ROE
(113.8%) ROCE
0.05
0.05 Market Cap
(113.8%)
Cash flow statement
FY16E $ in millions, except per share data
5,565 Net income
1,536 Depreciation & impairment
2,483 (Increase)/Decrease in WC
1,001 Other CFO
545 Cash flow from operations
1,740 Capex
267 Other CFI
1,473 Cash flow from Investing activities
7,305 Dividends paid
Share issue
1,107 Debt issued
Debt repayment
2,876 Other financing CF
2,542 Cash flow from Financing Activities
333 Net Change in Cash
FCFF
3,983 Operating CFPS
3,214 FCFF per share
108
7,305
2,325
5,539

FY12
162
-

FY13 FY14E FY15E FY16E


177
177
177
177
-

12.3
NM
NM
NM 110.0
0.20
0.26
0.30 0.31 0.31
1.0
1.1
1.2
1.1
1.1
0.3
0.6
0.6
0.6
0.6
0.5
0.8
1.1
1.2
1.2
1.7
2.7
3.8
4.0
3.8
14.8% (86.6%) (3.1%) 25.3% 24.6%
-

17.1% 57.0% 72.7% 72.0% 70.0%


0.8
1.9
2.7
2.9
2.7
1.8% (16.9%) (15.0%) (2.0%) 0.3%
2.2% (8.4%) (2.8%) 2.2% 4.3%
991

FY12 FY13 FY14E FY15E FY16E


74 (699) (530) (65)
9
709 1,612 1,045 741
700
63
(51)
60
42
15
75
46
263
195
181
921
908
839
914
905
(733) (827) (869) (663) (662)
(12) (893)
0
0
0
(745) (1,719) (869) (663) (662)
515
1
0
0
0
537
444 1,087
18
18
(95) (481) (1,201) (20) (57)
(163) (162) (200) (185) (186)
795 (197) (314) (188) (224)
989 (990) (345)
63
19
136 (857)
(31)
251
244
5.64
5.14
4.74 5.16 5.11
0.83 (4.85) (0.17) 1.42 1.38

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Gulf Marine Services: Summary of Financials


Profit and Loss Statement
$ in millions, except per share data
Revenues
% Change Y/Y
EBITDA (adjusted)
a.
a.
EBITDA Margin (%)
a.
a.
Depreciation
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Exceptional items
Earnings before tax
Tax
as a % of EBT
Minority interest
Non-recurring items
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
Balance sheet
$ in millions, except per share data
Total non-current assets
PPE
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets
Total Current Liabilities
Non-current liabilities
Borrowings
Other LT Liabilities
Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

Ratio Analysis
FY12 FY13 FY14E FY15E FY16E $ in millions, except per share data
143
184
196
244
306 Shares in issue (mn)
33.4% 29.2% 6.4% 24.4% 25.4% DPS (cents)
93 121
125
157
200 Dividend payout ratio
Valuation
65.5% 65.8% 63.7% 64.2% 65.3% P/E adjusted
P/BV
P/CF
(14) (17)
(19)
(24)
(26) EV/CE
77 104
105
132
174 EV/Sales
77 104
105
132
174 EV/EBITDA
54.1% 56.4% 53.6% 54.2% 56.8% FCFF Yield
(23) (29)
(19)
(19)
(16) Dividend Yield
(3)
(2)
(7)
0
0
51
73
79
114
157
(3)
(4)
(3)
(6)
(16)
5.4% 5.3% 3.6% 5.0% 10.0% Ratios
(0)
(1)
(2)
(2)
(2) Net Debt (Cash) / Equity
0
6
7
0
0 Net Debt / EBITDA
48
74
82
106
140 ROE
48
74
82
106
140 ROCE
117.0% 53.8% 10.3% 30.2% 31.8%
0.16 0.25 0.24 0.30 0.40 Market Cap
0.16 0.25 0.24 0.30 0.40
117.0% 53.8% (2.4%) 26.4% 31.8%
Cash flow statement
FY12 FY13 FY14E FY15E FY16E $ in millions, except per share data
459
495
622
790
838 Profit before tax
456
490
618
787
835 Income Tax Paid
3
5
4
4
4 Depreciation & impairment
40
91
89
93
104 (Increase)/Decrease in WC
2
47
42
35
32 Others
38
44
47
58
73 Cash flow from operations
499
586
711
883
943 Capex
Other CFI
83
43
38
45
54 Cash flow from Investing activities
Capital Increase / (Share Buyback)
229
359
313
379
301 Dividends paid
102
254
228
282
258 Debt issue
127
105
86
98
43 Debt repayment
312
402
352
424
354 Other financing cash flow
186
183
357
454
582 Cash flow from Financing Activities
1
1
3
4
6 Net Change in Cash
499
586
711
883
943 FCFF
274
327
280
354
278 Operating CFPS
461
510
637
808
861 FCFF per share

FY12
300
0.00
0.0%

8.9
2.3
5.0
1.8
5.4
8.2
14.0%
0.0%

FY13 FY14E FY15E FY16E


300
339
350
350
0.00 0.02 0.03 0.04
0.0% 9.4% 10.1% 10.1%

5.8
5.9
2.3
1.3
3.8
4.2
1.7
1.3
4.4
3.9
6.7
6.2
14.2% (6.6%)
0.0% 1.6%

4.7
3.6
1.1
0.8
3.4
2.8
1.2
0.9
3.5
2.5
5.4
3.8
1.6% 21.0%
2.2% 2.8%

146.7% 177.7% 77.9% 77.1% 47.3%


2.9
2.7
2.2
2.3
1.4
29.7% 40.1% 30.3% 26.2% 27.0%
17.0% 20.3% 17.6% 17.4% 18.7%
483

FY12
51
(2)
17
(7)
26
85
(30)
4
(25)
0
(1)
10
(49)
(22)
(62)
(2)
60
0.28
0.20

FY13 FY14E FY15E FY16E


73
79
114
157
(4)
(3)
(6)
(16)
17
20
24
26
(4)
(1)
(5)
(6)
31
19
19
16
113
114
146
178
(49) (147) (139)
(74)
(3)
1
1
1
(52) (146) (138)
(73)
0
101
0
0
(81)
(3)
(9)
(12)
280
0
80
15
(165)
(27)
(26)
(39)
(51)
(45)
(61)
(72)
(16)
27
(15) (108)
45
(5)
(8)
(3)
61
(32)
8
105
0.38 0.34 0.42 0.51
0.20 (0.09) 0.02 0.30

Source: Company reports and J.P. Morgan estimates.

45

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Lamprell PLC: Summary of Financials


Profit and Loss Statement
$ in millions, except per share data
Revenues
% Change Y/Y
EBITDA (adjusted)
a.
a.
EBITDA Margin (%)
a.
a.
Depreciation
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Other gains/losses (Fx)
Earnings before tax
Tax
as a % of EBT
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
a.
Balance sheet
$ in millions, except per share data
Total non-current assets
Goodwill
PPE
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets
Total Current Liabilities
Non-current liabilities
Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

FY12
1,045
(8.9%)
(64)

(6.1%)

(25)
(89)
(89)
(8.5%)
0
(110)
(1)
(0.7%)
(110)
(110)
(249.6%)
(0.42)
(0.42)
(237.5%)

FY12
390
181
166
44
676
263
413
1,067

Valuation
7.0% 11.4% 10.0% 10.7% P/E adjusted
P/BV
P/CF
(24)
(23)
(25) (25) EV/CE
53
96
69
86 EV/DACF
53
96
69
86 EV/Sales
4.8% 9.2% 7.3% 8.3% EV/EBITDA
FCF Yield
0
17
0
0 Dividend Yield
32
104
60
81 Buyback Yield
(1)
(1)
(1)
(1)
3.4% 0.9% 1.7% 1.2% Ratios
31
103
59
80 Net Debt (Cash) / Equity
31
86
59
80 Net Debt / EBITDA
(127.8%) 178.4% (30.7%) 34.7% ROE
0.12
0.33
0.17 0.23 ROCE
0.12
0.27
0.17 0.23
(127.8%) 129.8% (36.0%) 34.7% Market Cap

FY13 FY14E FY15E FY16E


391
430
479
504
181
181
181
181
148
211
260
285
62
38
38
38
684
823
775
875
345
424
408
470
339
398
368
405
1,075 1,253 1,255 1,379

622

491

462

422

458

38

140

134

132

160

660
406

632
443

596
656

554
701

618
761

1,067
(104)
302

1,075
(184)
259

1,253
(274)
382

Source: Company reports and J.P. Morgan estimates.

46

Ratio Analysis
FY13 FY14E FY15E FY16E $ in millions, except per share data
1,092 1,046
941 1,035 Shares in issue (mn)
4.4% (4.2%) (10.0%) 10.0% DPS (cents)
77
119
94 111 Dividend payout ratio

1,255 1,379
(258) (290)
443
471

Cash flow statement


$ in millions, except per share data
EBIT
Income Tax Paid
Depreciation & impairment
(Increase)/Decrease in WC
Others
Cash flow from operations
Capex
Other CFI
Cash flow from Investing activities
Capital Increase / (Share Buyback)
Dividends paid
Cash flow from Financing Activities
Net Change in Cash
DACF
FCF
Operating CFPS
FCF per share

FY12
260
0.00
0.0%

FY13 FY14E FY15E FY16E


260
315
342
342
0.00
0.00
0.04
0.06
0.0% 0.0% 25.0% 25.0%

NM
12.8
5.6
1.6
3.4
8.4
0.9
1.2
0.8
19.2
15.0
23.1
0.4
0.3
0.2
NM
4.3
2.0
58.7% 38.2% (1.8%)
0.0% 0.0% 0.0%
-

8.7
6.5
6.4
4.8
0.6
0.5
30.8
44.6
0.3
0.2
2.8
2.0
1.6% 12.1%
2.9% 3.9%
-

(25.6%) (41.5%) (41.8%) (36.8%) (38.2%)


1.6
(2.4)
(2.3)
(2.7)
(2.6)
(23.5%) 7.2% 15.6% 8.7% 10.9%
(19.1%) 18.2% 29.7% 16.4% 18.6%
394

FY12
(89)
(22)
25
301
(2)
250
(17)
(2)
(19)
0
(21)
(149)
83
22
231
0.96
0.89

FY13 FY14E FY15E FY16E


53
96
69
86
(22)
(10)
(8)
(5)
24
23
25
25
20
(78)
(11)
(1)
45
20
2
5
118
57
80
108
(12)
(86)
(74)
(50)
45
20
2
5
33
(66)
(72)
(45)
0
111
0
0
0
0
(15)
(20)
0
89
(25)
0
149
80
(17)
63
22
10
8
5
151
(9)
9
63
0.45
0.18
0.24
0.32
0.58 (0.03)
0.02
0.18

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Petroleum Geo-Services: Summary of Financials


Profit and Loss Statement
$ in millions, except per share data
Revenues
% Change Y/Y
Cost of sales
R&D expenses
SG&A expenses
EBITDA (adjusted)
EBITDA Margin (%)
Depreciation
Amortization of MC library
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Associate Income
Earnings before tax
Tax
as a % of EBT
Minority Interest
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
Balance sheet
$ in millions, except per share data
Total non-current assets
Net Intangibles
Goodwill
PPE
MC library
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets

FY12
1,518
21.1%
(642)
(38)
(61)
776
51.1%
(138)
(345)
294
294
19.3%
(61)
(4)
228
(43)
18.8%
(0)
186
186
450.1%
0.86
0.85
451.9%
FY12
2,437
143
140
1,438
382
335
837
390
446
3,274

Total Current Liabilities

369

Non-current liabilities
LT borrowings
Other LT liabilities

983
916
67

Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

1,352
1,922
0
3,274
527
2,448

Ratio Analysis
FY13 FY14E FY15E FY16E $ in millions, except per share data
1,502 1,437 1,265 1,265 Shares in issue (mn)
(1.1%) (4.3%) (11.9%) (0.0%) DPS (cents)
(571)
(636)
(582) (591) Dividend payout ratio
(39)
(39)
(38)
(37)
(63)
(58)
(60)
(55) Valuation
829
704
585
582 P/E adjusted
55.2% 49.0% 46.3% 46.0% P/BV
(145)
(209)
(184) (188) P/CF
(302)
(309)
(286) (279) EV/CE
382
186
115
116 EV/Sales
382
186
115
116 EV/EBITDA
25.4% 12.9%
9.1% 9.1% FCFF Yield
(41)
(64)
(40)
(41) Dividend Yield
(13)
(28)
(5)
(5)
328
94
70
69
(90)
(60)
(21)
(17)
27.3% 63.3% 30.0% 25.0% Ratios
0
0
0
0 Net Debt (Cash) / Equity
238
35
49
52 Net Debt / EBITDA
238
35
49
52 ROE
28.5% (85.5%) 41.7% 6.5% ROCE
1.11
0.16
0.23 0.24
1.10
0.16
0.23 0.24 Market Cap
29.1% (85.4%) 41.7% 6.5%
Cash flow statement
FY13 FY14E FY15E FY16E $ in millions, except per share data
2,781 2,956 3,009 3,170 Net income
165
165
165
165 Depreciation & impairment
140
140
140
140 (Increase)/Decrease in WC
1,630 1,696 1,683 1,783 Other CFO
577
714
784
851 Cash flow from operations
270
242
237
232 Capex
763
744
773
699 Investments in MC library
264
265
350
276 Other CFI
500
479
423
423 Cash flow from Investing activities
3,544 3,700 3,782 3,870 Dividends paid
Debt issued
391
384
341
366 Debt repayment
Other financing CF
1,088 1,248 1,341 1,370 Cash flow from Financing Activities
1,020 1,179 1,272 1,301 Net Change in Cash
69
69
69
69 FCFF
Operating CFPS
1,479 1,632 1,682 1,736 FCFF per share
2,066 2,068 2,100 2,134
0
0
0
0
3,544 3,700 3,782 3,870
767
935
944 1,071
2,832 3,003 3,044 3,205

FY12 FY13 FY14E FY15E FY16E


217
216
215
215
215
0.28 0.39 0.08 0.08 0.08
33.0% 35.5% 50.0% 35.0% 35.0%

6.0
4.7 32.2
0.58 0.54 0.54
1.5
1.4
1.8
0.7
0.7
0.7
1.0
1.2
1.4
2.0
2.2
2.8
8.7% (3.2%) (9.3%)
5.5% 7.6% 1.6%

22.7 21.3
0.53 0.52
1.9
2.0
0.7
0.7
1.6
1.7
3.4
3.7
4.1% (6.3%)
1.5% 1.6%

27.4% 37.1% 45.2% 44.9% 50.2%


0.7
0.9
1.3
1.6
1.8
10.0% 12.0% 1.7% 2.3% 2.5%
10.1% 10.5% 2.3% 2.7% 2.8%
1,110

FY12
186
484
47
36
753
(358)
(297)
(2)
(658)
(42)
156
(191)
(53)
(129)
(34)
97
3.46
0.45

FY13 FY14E FY15E FY16E


238
35
49
52
433
485
471
467
65
5
12
0
40
95
42
45
776
619
574
563
(439) (374) (250) (370)
(373) (347) (278) (263)
(49)
0
0
0
(861) (722) (528) (633)
(61)
(17)
(17)
(18)
115
251
114
100
(12)
(91)
(21)
(46)
(83)
(38)
(37)
(40)
(41)
104
39
(4)
(126)
1
84
(73)
(36) (103)
46
(70)
3.58 2.87 2.66 2.62
(0.17) (0.48) 0.21 (0.32)

Source: Company reports and J.P. Morgan estimates.

47

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Tecnicas Reunidas: Summary of Financials


Profit and Loss Statement
in millions, except per share data
Oil & Gas
Power
I&I
Others
Revenues
% Change Y/Y
EBITDA (adjusted)
EBITDA Margin (%)

FY12
2,298
132
222
4
2,657
1.5%
157
5.9%

a.

Depreciation

(8)

a.

Oil & Gas


Power
I&I
Unallocated
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Others and exceptional items
Associate Income
Earnings before tax
Tax
as a % of EBT
Minority Interest
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
Balance sheet
in millions, except per share data
Total non-current assets
Net Intangibles
PPE
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets

198
12
2
(63)
149
149
5.6%
8
(0)
1
158
(22)
13.6%
(3)
133
133
3.0%
2.48
2.48
3.0%

Total Current Liabilities

2,132

Non-current liabilities
Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

FY12
162
71
34
57
2,484
617
1,867
2,646

71
2,203
432
12
2,646
(266)
473

Source: Company reports and J.P. Morgan estimates.

48

Ratio Analysis
FY13 FY14E FY15E FY16E in millions, except per share data
2,614 2,960 3,050 3,150 Shares in issue (mn)
79
85
220
350 DPS (cents)
153
83
90
100 Dividend payout ratio
8
3
2
2
2,854 3,131 3,362 3,602 Valuation
7.4% 9.7% 7.4% 7.1% P/E adjusted
157
170
180
196 P/BV
5.5% 5.4% 5.4% 5.4% P/CF
EV/CE
(9) (12)
(10)
(10) EV/Sales
EV/EBITDA
220
236
244
255 FCFF Yield
(4)
(3)
7
18 Dividend Yield
(1)
(0)
0
0
(67)
(74)
(81)
(86) Ratios
148
158
170
186 Net Debt (Cash) / Equity
148
158
170
186 Net Debt / EBITDA
5.2% 5.1% 5.1% 5.2% Book-to-bill
5
7
7
8 Sales/Backlog (t-1)
0
0
0
0 ROE
(3)
(1)
0
0 ROCE
151
164
177
194
(22)
(30)
(34)
(39) Market Cap
14.6% 18.1% 19.0% 20.0%
(1)
0
0
0
128
135
143
155
128
135
143
155
(4.3%) 5.5% 6.3% 8.3%
2.38 2.51 2.66 2.88
2.38 2.51 2.66 2.88
(4.3%) 5.5% 6.3% 8.3%
Cash flow statement
FY13 FY14E FY15E FY16E in millions, except per share data
174
172
172
172 Profit before tax
71
71
71
71 Depreciation & impairment
42
40
40
40 (Increase)/Decrease in WC
61
61
61
61 Other CFO
2,189 2,429 2,635 2,853 Cash flow from operations
591
676
752
836 Capex
1,598 1,753 1,883 2,017 Other CFI
2,363 2,601 2,806 3,025 Cash flow from Investing activities
Dividends paid
1,840 2,025 2,173 2,328 Other financing CF
Cash flow from Financing Activities
84
84
84
84 Net Change in Cash
FCFF
1,924 2,109 2,257 2,412 Operating CFPS
434
488
545
609 FCFF per share
4
4
4
4
2,363 2,601 2,806 3,025
(485) (443) (472) (539)
473
533
590
654

FY12
54
1.40
56.2%

14.2
4.4
2,400.0
3.0
0.5
8.3
(0.5%)
4.0%

FY13 FY14E FY15E FY16E


54
54
54
54
1.40
1.51
1.60
1.70
58.7% 60.3% 60.1% 58.9%

14.8
4.4
22.4
2.8
0.5
8.4
3.6%
4.0%

14.0
3.9
11.1
2.5
0.4
7.3
8.5%
4.3%

13.2
3.5
11.0
2.1
0.3
6.5
8.6%
4.5%

12.2
3.1
10.2
1.7
0.3
5.5
9.3%
4.8%

(59.9%) (110.5%) (90.0%) (85.9%) (87.9%)


(1.7)
(3.1)
(2.6)
(2.6)
(2.7)
1.2
1.0
1.5
0.9
0.8
0.5
0.5
0.5
0.4
0.5
34.5%
29.5% 29.2% 27.7% 26.9%
30.0%
26.7% 25.8% 24.5% 24.0%
1,891

FY12
136
8
(101)
(43)
1
(11)
(2)
(13)
(73)
0
(78)
(91)
(10)
0.01
(0.19)

FY13 FY14E FY15E FY16E


129
135
143
155
9
12
10
10
(66)
23
19
20
12
1
0
0
85
170
172
185
(16)
(10)
(10)
(10)
(1)
0
0
0
(17)
(10)
(10)
(10)
(75)
(81)
(86)
(91)
(15)
0
0
0
(93)
(75)
(86)
(91)
(26)
85
76
84
68
160
162
175
1.57
3.16
3.21
3.44
1.27
2.98
3.02
3.26

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

TGS Nopec: Summary of Financials


Profit and Loss Statement
$ in millions, except per share data
Revenues
% Change Y/Y
Cost of sales
SG&A expenses
Stock based compensation
Other operating expenses
EBITDA (adjusted)
EBITDA Margin (%)
Depreciation
Amortization of MC library
EBIT (reported)
EBIT (adjusted)
Adjusted EBIT Margin (%)
Net financial items
Others and exceptional items
Earnings before tax
Tax
as a % of EBT
Net Income (Reported)
Net Income (Adjusted)
% Change Y/Y
EPS (reported), basic
EPS (adjusted, diluted)
% Change Y/Y
Balance sheet
$ in millions, except per share data
Total non-current assets
Net Intangibles
Goodwill
PPE
MC library
Other non-current assets
Total Current Assets
Cash and cash equivalent
Other current assets
Total assets
Total Current Liabilities
Non-current liabilities
LT borrowings
Other LT liabilities
Total Liabilities
Shareholders' equity
Minority Interests
Total liabilities & SE
Net debt / (Net Cash)
Capital Employed

FY12
932
53.2%
(7)
(84)
(3)
(36)
802
86.0%
(12)
(387)
402
402
43.1%
5
(0)
407
(123)
30.2%
284
284
66.7%
2.79
2.75
66.4%

FY13
883
(5.2%)
(20)
(81)
(4)
(45)
733
83.0%
(16)
(330)
387
387
43.8%
4
(9)
381
(112)
29.5%
269
269
(5.4%)
2.63
2.60
(5.1%)

FY14E
915
3.6%
(5)
(101)
(5)
(43)
762
83.3%
(16)
(390)
356
356
38.9%
7
(0)
363
(102)
28.0%
261
261
(2.9%)
2.57
2.54
(2.5%)

FY15E
744
(18.7%)
(7)
(74)
(5)
(43)
614
82.6%
(16)
(331)
268
268
36.0%
7
0
275
(82)
30.0%
192
192
(26.4%)
1.89
1.87
(26.4%)

FY16E
767
3.2%
(8)
(77)
(5)
(43)
635
82.8%
(16)
(336)
284
284
37.0%
6
0
290
(87)
30.0%
203
203
5.5%
2.00
1.97
5.4%

Ratio Analysis
$ in millions, except per share data
Shares in issue (mn)
DPS (cents)
Dividend payout ratio
Valuation
P/E adjusted
P/BV
P/CF
EV/CE
EV/Sales
EV/EBITDA
FCFF Yield
Dividend Yield

Ratios
Net Debt (Cash) / Equity
Net Debt / EBITDA
ROE
ROCE
Market Cap

Cash flow statement


FY12 FY13 FY14E FY15E FY16E $ in millions, except per share data
885 1,005 1,074 1,166 1,261 Profit before tax
56
47
47
47
47 Depreciation & impairment
112
85
85
85
85 Cash tax paid
32
53
52
51
51 (Increase)/Decrease in WC
651
758
828
920 1,016 Other CFO
35
63
63
63
63 Cash flow from operations
801
731
795
732
734 Capex
339
281
328
353
343 Other CFI
462
450
467
379
391 Cash flow from Investing activities
1,686 1,736 1,869 1,898 1,995 Dividends paid
Share buyback
375
342
350
303
310 Other financing CF
Cash flow from Financing Activities
143
102
102
102
102 Net Change in Cash
0
0
0
0
0 FCFF
143
102
102
102
102 Operating CFPS
517
443
452
405
412 FCFF per share
1,168 1,293 1,417 1,493 1,583
0
0
0
0
0
1,686 1,736 1,869 1,898 1,995
(339) (281) (328) (353) (343)
830 1,012 1,089 1,140 1,241

FY12
104
1.06
38.6%

8.3
2.02
3.6
2.7
2.2
2.5
3.3%
4.6%

FY13 FY14E FY15E FY16E


103
103
103
103
1.13
1.13
1.10
1.10
43.2% 44.3% 59.0% 56.0%

8.8
1.82
4.3
2.2
2.3
2.8
3.5%
4.9%

9.0
1.66
3.6
1.9
2.2
2.7
7.9%
4.9%

12.2
1.57
4.1
1.8
2.7
3.2
6.0%
4.8%

11.6
1.48
4.3
1.7
2.6
3.2
4.3%
4.8%

(29.0%) (21.7%) (23.2%) (23.6%) (21.6%)


(0.4)
(0.4)
(0.4)
(0.6)
(0.5)
26.6% 21.9% 19.3% 13.2% 13.2%
38.3% 29.6% 24.4% 16.8% 16.7%
2,349

FY12
407
400
(80)
(89)
25
663
(509)
(55)
(563)
(103)

FY13 FY14E FY15E FY16E


381
363
275
290
346
406
347
352
(124)
(102)
(82)
(87)
(61)
(7)
41
(6)
(0)
0
0
0
543
660
580
549
(461)
(475) (438)
(447)
8
0
0
0
(454)
(475) (438)
(447)
(142)
(112) (112)
(112)

(5)

(25)

(5)

6
(97)
3
79
6.40
0.76

(1)
(148)
(58)
82
5.26
0.80

0
(137)
48
185
6.41
1.79

0
(117)
24
141
5.63
1.37

0
(112)
(10)
102
5.33
0.99

Source: Company reports and J.P. Morgan estimates.

49

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in
Cape, CGG, Gulf Marine Services, Lamprell PLC, Petroleum Geo-Services, Tecnicas Reunidas, TGS Nopec.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Gulf Marine
Services, Lamprell PLC, Petroleum Geo-Services within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Cape, Gulf Marine
Services, Lamprell PLC, Petroleum Geo-Services, Tecnicas Reunidas.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Gulf Marine Services, Lamprell PLC, Petroleum Geo-Services.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Lamprell PLC, Petroleum GeoServices, Tecnicas Reunidas.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: Petroleum Geo-Services.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Gulf
Marine Services, Lamprell PLC, Petroleum Geo-Services.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Cape, Gulf Marine Services, Lamprell PLC, Petroleum Geo-Services.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Lamprell PLC, Petroleum Geo-Services, Tecnicas Reunidas.

Broker: J.P. Morgan Securities plc acts as Corporate Broker to Cape, Lamprell PLC.

Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
compendium reports and all J.P. Morgancovered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406,
or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative
Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-4770406 or e-mail research.disclosure.inquiries@jpmorgan.com.

50

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Cape (CIU.L, CIU LN) Price Chart


1,062

Date

Rating Share Price Price Target


(p)
(p)

03-Jun-11

OW

534

750

19-Aug-11 OW

465

697

09-Nov-11 OW

465

596

01-Feb-12 OW

392

518

06-Mar-12 OW

445

576

22-Mar-12 OW

464

633

25-May-12 OW

205

551

01-Aug-12 OW

187

399

25-Oct-12

OW

273

391

02-Jan-13

OW

212

311

15-May-13 OW

273

308

28-Aug-13 OW

281

323

29-Aug-13 OW

281

320

26-Sep-13 N

261

299

15-Nov-13 N

270

288

30-Jun-14

OW

296

350

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Jun 03, 2011.

27-Aug-14 OW

301

355

12-Nov-14 OW

282

350

CGG (GEPH.PA, CGG FP) Price Chart

Date

OW 596p
OW 633pOW 391p

N 299p

OW 350p

885
OW 697pOW 576p
OW 399p

OW 320p

OW 355p

708
OW 750p OW 518p
OW 551pOW 311p
OW 308p
OW N
323p
288p OW 350p
Price(p)

531

354

177

0
Apr
08

Jan
09

Oct
09

Jul
10

Apr
11

Jan
12

Oct
12

Jul
13

Apr
14

Jan
15

85
N 25.4
68

OW 28

51

UW 21.7

OW 12.5
OW 17.5
N 18 N 18.4
UW 23
OW 25.1
N 20.4

N 18.5

OW 26.9
OW 21.5

N 7.2

N 29.1
OW 22.1
N 18.6

Price()
34

17

0
Sep
06

Mar
08

Sep
09

Mar
11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Mar 24, 2009.

Sep
12

Mar
14

UW 3.5

Rating Share Price Price Target


()
()

24-Mar-09 OW

9.50

12.50

04-Aug-09 OW

14.70

17.50

04-Feb-10 N

18.26

18.00

21-Apr-10

23.86

28.00

23-Sep-10 N

16.56

18.40

19-Jan-11

UW

22.18

23.00

19-Aug-11 OW

15.62

25.10

14-Dec-11 N

14.68

20.40

01-Feb-12 UW

20.38

21.70

23-Mar-12 N

21.65

25.40

25-Oct-12

24.21

29.10

29-Jan-13

OW

22.41

26.90

14-May-13 OW

19.04

22.10

31-Jul-13

18.90

21.50

10-Sep-13 N

18.26

18.50

07-Nov-13 N

15.66

18.60

29-Oct-14

5.19

3.50

7.95

7.20

OW

OW

UW

03-Dec-14 N

51

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Gulf Marine Services (GMS.L, GMS LN) Price Chart


272
238
204
N 165p

170
Price(p) 136

Date

102

Rating Share Price Price Target


(p)
(p)

01-May-14 N

160

165

68
34
0
Apr
14

May
14

Jul
14

Sep
14

Nov
14

Jan
15

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage May 01, 2014.

Date

Lamprell PLC (LAM.L, LAM LN) Price Chart


990
N 266p
UW 35p

N 172p

OW 180p

825
OW 395p
660

OW 470p
UW 76p

N 166p OW 175p

OWOW 389p OW 444p


OW 411p
N 156pUW 114p
N OW
164p175p
OW 165pOW 154p

Price(p) 495

330

165

0
Oct
06

Apr
08

Oct
09

Apr
11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Mar 01, 2010.

52

Oct
12

Apr
14

Rating Share Price Price Target


(p)
(p)

01-Mar-10 OW

244

23-Sep-10 OW

323

389

23-Nov-10 OW

317

395

19-Aug-11 OW

297

444

01-Feb-12 OW

300

411

22-Mar-12 OW

337

470

16-May-12 N

295

266

08-Jun-12

109

156

26-Jul-12

UW

85

76

03-Oct-12

UW

110

35

29-Jan-13

UW

130

114

19-Jun-13

143

164

28-Aug-13 N

141

166

29-Aug-13 N

143

172

26-Sep-13 OW

142

175

16-Apr-14

OW

144

165

01-Jul-14

OW

156

175

28-Aug-14 OW

155

180

12-Jan-15

112

154

OW

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Petroleum Geo-Services (PGS.OL, PGS NO) Price Chart


306
N NKr80

OW NKr128

Date

Rating Share Price Price Target


(NKr)
(NKr)

21-Apr-10

255
OW
OW
NKr78
NKr109
OW NKr134 OW NKr105

87.95

103.00

54.30

84.00

OW

63.15

78.00

74.00

80.00

01-Feb-12 N

75.10

78.00

23-Mar-12 OW

81.25

109.00

27-Sep-12 OW

92.35

135.00

25-Oct-12

OW

91.60

134.00

29-Jan-13

OW

97.15

128.00

10-Sep-13 OW

77.75

115.00

25-Oct-13

OW

73.90

105.00

29-Oct-14

UW

35.35

24.00

Date

Rating Share Price Price Target


()
()

14-Dec-11 OW

204
N NKr103

OWNNKr84
NKr78
OW NKr135OW NKr115

UW NKr24 22-Dec-11

23-Jan-12

Price(NKr) 153

102

51

0
Feb
07

Aug
08

Feb
10

Aug
11

Feb
13

Aug
14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Apr 21, 2010.

Tecnicas Reunidas (TRE.MC, TRE SM) Price Chart

95
OW 40.8

OW 47

76
OW OW OW
51 58
OW 40.4
OW 36.4 N 44.3 N 38.2
UW 40 OW 48.5
Price() 57

38

19

0
Sep
06

Mar
08

Sep
09

Mar
11

Sep
12

Mar
14

01-Mar-10 OW

41.30

23-Sep-10 OW

38.90

51.00

19-Jan-11

OW

44.85

58.00

19-Aug-11 OW

23.64

40.40

01-Feb-12 OW

27.70

36.40

22-Mar-12 OW

31.66

40.80

25-Oct-12

39.00

44.30

05-Aug-13 N

33.10

38.20

26-Nov-13 UW

39.28

40.00

03-Sep-14 OW

42.11

48.50

07-Nov-14 OW

38.34

47.00

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Mar 01, 2010.

53

Europe Equity Research


19 January 2015

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

TGS Nopec (TGS.OL, TGS NO) Price Chart


396

330
UW NKr214
N NKr189
264

N NKr137

UW NKr190
UW NKr218N NKr209

N NKr127

Price(NKr) 198

132

66

Date

Rating Share Price Price Target


(NKr)
(NKr)

21-Apr-10

128.80

137.00

06-Jun-12

UW

147.90

190.00

25-Oct-12

UW

188.90

218.00

29-Jan-13

UW

204.80

214.00

10-Sep-13 N

184.50

209.00

22-Oct-13

157.00

189.00

29-Oct-14

159.50

127.00

0
Feb
07

Aug
08

Feb
10

Aug
11

Feb
13

Aug
14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Apr 21, 2010.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: Bhat, Rahul: CGG (GEPH.PA), Cape (CIU.L), Petroleum Geo-Services (PGS.OL), TGS Nopec (TGS.OL),
Tecnicas Reunidas (TRE.MC)
J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2015
J.P. Morgan Global Equity Research Coverage
IB clients*
JPMS Equity Research Coverage
IB clients*

Overweight
(buy)
45%
56%
45%
75%

Neutral
(hold)
43%
49%
48%
67%

Underweight
(sell)
12%
33%
7%
52%

*Percentage of investment banking clients in each rating category.


For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based
upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

54

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,
and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.

Other Disclosures
J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing
name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.
All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is
redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales
representative.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have
received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,
please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf
Legal Entities Disclosures
U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London
Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by
the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on
request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25
Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities
Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CE
number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is
regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No:
238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by
ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant
of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited
(Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East,
Mumbai 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE
230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and
Exchange Board of India. Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this
material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan
Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and
Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan
Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities
Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the
Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the
Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo
Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange
Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS)
[MCI (P) 199/03/2014 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the
Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. This
material is provided in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and
Futures Act, Cap. 289. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection
with, the document. Japan: JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia: This material is issued
and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a
holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a
member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia
Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and
custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad
Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial
Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc.
Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of
publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This
report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons
who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be
engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in
their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take
into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to
55

Rahul Bhat
(44-20) 7134-9059
rahul.bhat@jpmorgan.com

Europe Equity Research


19 January 2015

any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the
meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt
Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: The
1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons
Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may
be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative
warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx
website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and
that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be
receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually
agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd.,
Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan,
Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to
from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of
the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures
section above. Taiwan: This material is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan Limited). India: For private circulation only,
not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to
persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money.
JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The
recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The
information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell
securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of
the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian
securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer
registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no
circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that
the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of
Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in
Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein,
and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the
DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.
or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to
JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the
securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change
without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any
financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not
intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own
independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.
affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or
announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.
Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
"Other Disclosures" last revised November 29, 2014.

Copyright 2015 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan. #$J&098$#*P

56