Oil has hit a 15-month high on the back of optimism over the Opec deal which needs to be sorted out by November 30. But, with a record long position building across the combined benchmarks, a disappointment could leave some exposed. Full report to come within the hour....
Medium term
Trade view / 05 July 2016 at 13:26 GMT

TGS may outperform despite challenging environment

Director / PIA First
United Kingdom

MarketCap: US $1.6 billion (bn)/ €1.4bn/ NOK13.4bn (figures rounded up)
Sector: Oil & Gas support services
Headquarters:  Norway
Primary listing: Oslo


June's bullish outside month aligns with the trend of higher lows. Trendline support comes in around the NOK115-120 area from the rejection of the psychological level of NOK100. 
Stochastic Oscillators: Negative monthly momentum stalling as prices continue within a triangle formation. The weekly MACD crossed to the upside in February of this year and remains positive
Moving averages: The stock is trading between its 50-day and 200-day simple moving average.
Volume: Recent trading has seen volume marginally below the stock's averages (436k 50-day/ 537k million 200-day).

Company Thematics


Medium-term: TGS benefits from a global footprint (chart above) and a Q1 order backlog of $125 million.
Longer term: Management is focused on an asset-light operating model, with initiatives including (i) disciplined cost control, (ii) building balance sheet strength, and (iii) capital expenditure controls that match the wider industry cycle.
Growth: It is PIA’s expectations that global energy demand should continue to increase over the medium to longer term which in turn will drive exploration for oil and gas.

Recent results: As at Q1 management noted; “the long-term future of our asset-light, multi-client business remains strong…”
Non-current liabilities: As at Q1 NOK4,814 million (NOK8,519 million Q12015).
Free cash flow (FCF): Despite the more challenging operating environment management have managed to increase FCF in the latest quarter, as well as reduce non-current liabilities.


Standalone valuation: TGS has an Altman Z-Score of 9.12 (a read of >3 generally indicates solid underlying company financials) .  
Competitor/ Industry valuation: Trades at a premium to its peer group on a number of forward metrics.

Operating expenses: TGS has managed to lower operating costs (chart above) over the past number of quarters.
Dividend: Current yield 3.63%
2016 Outlook: Management’s is targeting multi-client investments of some $220 million with between 45 and 50% of these investments pre-funded – Source Q1 Company figures.
Broker Stock sentiment: Currently negative on the name.

TGS is set to report Q2 numbers on August 4


Entry: Looking to buy on the current pullback and add on a break higher
For breakout buyers (B): We would highlight NOK140 (mid April 2016 highs)
For pullback buyers (P): We would highlight NOK115 (early April 2016) with a lower level at NOK100.30

Stop: As low risk market participants we would recommend a hard stop loss @ NOK99 

Target: NOK150 then NOK165

Time horizon: 2-6 months

Source: Saxo Bank

5-year chart:
 Source: Saxo Bank
— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more


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