Strategic trade
Trade view / 07 June 2016 at 8:54 GMT

#SaxoStrats: Subsea 7 sensitive to oil price gains

Head of Equity Strategy / Saxo Bank

The market is more negative on Subsea 7 compared to its peers based on the large valuation discount. 2016 will undoubtedly be a tough year for Subsea 7 as deepwater oil spending is being cut dramatically due to oil prices at around $50/barrel. 

However, the firm's Q1 earnings provided a glimpse of what makes Subsea 7 a great company. It managed to offset revenue decline by aggressive cost cutting preserving its attractive operating margin. The order intake and backlog looked good despite the Q1 revenue miss. 

Our long position in Subsea 7 is our first attempt to increase exposure to the energy sector after being hesitant to join the rally until we got past the $50/b mark. The stock is the best high-beta play should oil prices continue to rally in 2016.

Subsea 7

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank 


Subsea 7 is valued at 12-month forward EV/EBITDA 3.5, around a 50%  discount to global peers, which is one standard deviation below its historical average reflecting the industry’s negative outlook. 

The valuation shows that substantial rewards lie ahead should the oil price continue to rally. We see 35-40% upside from current levels should oil prices go back to $75/b.

Source: Saxo Bank 

Management and risk description

Risks include a situation in which Saudi Arabia fails to negotiate a controlled supply constraint among oil-producing countries, leading to lower oil prices. Also, a weaker than expected Chinese economy would impact this trade.


Entry: buy Subsea 7 (SUBC:xosl) and hedge with OBX (NOR25.I) with  exposure 1:1 – so NOK neutral.

Time horizon: Holding period is expected to be a  couple of quarters as the oil market adjusts itself.

— Edited by Michael McKenna

For more on equities click here.

Non-independent investment research disclaimer applies. Read more
07 June
Rafael F. Rafael F.
Hi Peter, i really appreciate your recommendation, but i have some questions, i saw that you recently have recommended only L&S, your calls will be concentrated in L&?
Do you think in recommend stop loss and gain? Because without this is a little complicated calculate the risk of the operation and of my portfolio.
Thanks in advanced.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail