BLBG:Oil-Service Companies Plunge as Saipem Lowers Forecast
Saipem SpA (SPM) plunged a record 39 percent after Europe’s largest oil-service provider cut profit forecasts, raising concern earnings across the industry will be lower than analysts estimated.
Shares plummeted as much as 11.84 euros to 18.61 euros in Milan trading. The stock traded at 19.71 euros at 11:37 a.m. local time. Other providers of engineering to the oil industry dropped. Technip SA (TEC), Europe’s second-largest, fell as much as 7.9 percent, its biggest drop in more than a year. London-based Petrofac Ltd. (PFC) also tumbled as much as 7.9 percent.
Saipem had its rating cut by at least 11 brokers after yesterday’s announcement that 2013 earnings before interest and tax would be 750 million euros ($1 billion) compared with analyst estimates of 1.7 billion euros. The company said the revised outlook was based on a review of its contracts.
The profit warning “looks set to heavily penalize Saipem in the short term,” Bank of America Merrill Lynch said today in a note. “It seems the core issue relates to the phasing of the backlog, where lower profit projects remain, and the continued delay of awards for the better-priced contracts has led to a perfect storm.”
Saipem said yesterday it expected a “very significant reduction” of around 80 percent in Ebit this year from its onshore business because most of the contracts, mainly in the Middle East, Nigeria and Algeria, to be carried out are less profitable than those that were completed in 2012.
Contract Delays
Delays to large contract awards in Venezuela, Nigeria and Iraq, also contributed to the lower guidance, it said in a conference call.
In the offshore business, Saipem expects Ebit to fall by 70 percent in 2013, it said.
Eni, Italy’s largest oil company and a 43 percent shareholder in Saipem, fell as much as 6 percent to 18.16 euros in Milan trading. The stock traded at 18.40 euros at 11:09 a.m. local time.
To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
