Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Medium term
Trade view / 18 July 2016 at 9:29 GMT

SBM Offshore spikes after settlement

Director / PIA-First Limited
United Kingdom
Instrument: SBMO:xams
Price target:
Market price:

July 18 saw SBM reach a settlement with the Brazilian authorities regarding payments to Petrobras. The stock has moved sharply higher on the news, and we are conviction buyers with targets at €13 and then €14 ahead of H1 numbers due August 10. 

  • Market cap: $2.17 billion (figures rounded up)
  • Sector: Oil support services
  • Headquarters: Amsterdam
  • Primary listing: Amsterdam AEX


Prices continue to trade within a large symmetrical triangle formation. The weekly MACD is crossing to the upside after basing at trendline support. Prices have gapped up over the weekend.

The stock is now trading above the 50-day moving average and at the 200-day moving average

Let's take a look at the company's fundamental thematics...

Medium-term: SBM benefits from a global footprint and a lean day-to-day operating backdrop.

Longer-term: The bulk of SBM’s order backlog is Lease and Operate which management has stated is not dependent on oil pricing or production levels.

Growth: It is PIA’s expectations that global energy demand should continue to increase over the medium to longer term.   

Recent results: As of Q1 management noted continued growth in Lease and Operate cash flows on the back of the delivery of Cidade de Mancá over the period, with two further deliveries due by mid-year. SBM, like its peers is also remaining focused on cost management in the wake of a lower oil price environment

Net debt: As at Q1 net debt stood at $3.1 billion, unchanged from the prior quarter.

L&O sales growth: Plus 7% over the Q1 period and expected to account for the bulk of FY2016 top line revenues.

Standalone valuation: SBM trades at a discount to its forward EV/EBITDA historical average.
Competitor/ Industry valuation: Trades at a discount to its peer group on a number of forward metrics.
Backlog trend: As of Q1 the order backlog stood at $18.5bn versus $18.9bn for the prior quarter.

FY2016: Management are guiding for revenue of some $2bn (L&O circa $1.3-1.4bn) with EBITDA estimated at $750 million.
Dividend: Current yield 1.8%.
Investor stock sentiment: Currently an ‘outperform’ on the name.  

SBM is set to report H1 numbers on August 10.

Management and risk description

As low risk market participants we would recommend a hard stop loss at €8.60 on SBM.


Entry: buy at current levels
breakout buyers: €11.90 (mid-June rejection level)
pullback buyers:  €10.00 (mid-July gap fill with a lower level at €9.50)

Stop: a break below €8.60.

Target: €12.90 and €13.80.

Time horizon: one to three months.

Daily chart with Fibonacci retracement levels:

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Source: Saxo Bank

Weekly chart highlighting symmetrical triangle:
Source: Saxo Bank

— Edited by Michael McKenna

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