CGG – FY2020 preliminary figures do not change our thesis
All,
Please refer to our unchanged analysis here.
CGG released a set of preliminary figures and statements for Q4 20 and FY2020, with little detail. The headlines numbers on their own are below what we expected. But the message is generally positive, as the Equipment unit significantly outperformed, and as this unit is the more cyclical leading indicator of the sector, it bodes well for the strength of the recovery ahead. Investors appear to share this view, as the stock is slightly up today following the 17% rally since the beginning of the year.
Q4 20 revenues are now expected at USD282m, vs our USD327m estimates. It appears that the main driver of this disappointment is the Geoscience unit, as the more cyclical Equipment division actually outperformed our USD84m estimates, coming at USD106m. The significant outflow of working capital during Q4 20 is probably associated with the outperformance of the Equipment unit.
Finally, CGG announced a combined put option exercise+disposal transaction regarding its stake in Shearwater Geoservices, with a negative net cash impact of around USD-2.4m.
We currently have a long position on both the First Lien and Second Lien notes. As we have been flagging in our daily, the oil&gas complex appears to be structurally on the mend, following the latest OPEC+ moves in the context of a more supportive fiscal background in the US. Brent is on the way to 60, which we see as the new level where offshore oil works for everyone in the value chain, following last year’s cost compression. We continue to expect CGG to be able to pull a full plain vanilla refinancing of its capital structure between March and June.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano
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