Saipem Earnings: Results Reflect Early Stages of a MultiYear Upcycle in Offshore Investment

No-moat Saipem SPM posted solid first-quarter results, with revenue increasing 33% year over year and a firmwide adjusted EBITDA margin improving 100 basis points year over year to 7.5%. We’re raising our fair value estimate to EUR 2.50 from EUR 2 following results.

Saipem’s quarterly performance reflects the early stages of an improving offshore oil and gas market after years of stagnant investment. We expect the operating environment will continue to improve throughout 2023 and will remain strong through at least 2026. By our estimate, 2023 revenue will reach EUR 12.3 billion and will average 5% annual growth over the next five years. A tight supply-demand balance will foster a favorable pricing environment as well, and we expect firmwide EBITDA margins will steadily increase over the next five years, averaging 9% through 2027 (compared with 5% in 2022).

Robust offshore oil and gas production will drive most of Saipem’s performance moving forward: about two-thirds of this quarter’s order intake involved offshore drilling, engineering and construction services, historically higher-margin businesses for the firm. Over half of the firm’s EUR 24 billion backlog now comprises offshore projects. This is a significant shift compared with last year, when offshore projects made up roughly 40% of Saipem’s backlog, even after adjusting for divestiture of the onshore drilling business. In our view, the firm’s end-market exposure will continue to lean toward offshore over the next several years as offshore activity continues to gain momentum worldwide. The majority of Saipem’s available fleet is contracted through 2025 and beyond, with several vessels committed through 2028. We’re thus confident that Saipem is very well positioned to benefit from heightened offshore investment for years to come.