November 10, 2009
Goldman Sachs Global Investment Research
November 10, 2009
3Q revenues light on Sercel and multi client; 2010 demand the key
CGGVeritas reported 3Q results below our expectation in terms of
revenues, caused by weaker multi client and Sercel revenues, but in line at
the EBITDA level due to lower costs than we were anticipating in the
Services division. We update our estimates for the results, and EPS falls to
€0.51/€0.28/€0.99 from €0.61/€0.40/€1.25 in 2009/2010/2011E, caused
primarily by lower revenues and margins assumed in Sercel, along with
lower assumed marine revenue.
The company believes that it is moving into the trough of seismic pricing
currently, and management expects the contract seismic market to pick up
from 2H2010, driven partly by a stronger North Sea season. Management
is also looking for a stronger 4Q in terms of multi client demand. The
company is continuing with its cost reduction program, aiming for a
reduction in costs of US$350 mn as it removes eight lower-quality vessels
from the fleet and targets greater cost efficiencies. We view the strong
cash generation in the quarter positively, and continue to be positive on an
improvement in demand for seismic as we move through 2010. Our
preferred way to play this theme remains Petroleum Geo-Services
(PGS.OL, CL Buy, Nkr56.45), which we view as having a higher-quality fleet
and greater potential upside to a stronger pricing environment.
The shares trade on 8.5x and 5.9x 2010E and 2011E EV/DACF, relative to
PGS on 9.9x and 6.5x. We reduce our 2-year, target multiple-based price
target to €28 (from €29) and maintain our Buy rating.
The key downside risk to our view and price target is demand for seismic
services remaining weaker than we expect, meaning that pricing and
margins are materially lower than we currently forecast.
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