Mixed guidance – Positive for 24E cashflow
TGS/PGS delivered a solid EBITDA beat after the disappointing revenue updates. Guidance was more mixed but in sum we lift our 2024e cashflow estimate by ~20% as increased vessel costs/capex is more-than offset by high prefunding and lower MC investments. The combined company trades at a 15% unlevered FCF yield for 2024e, and EV/EBIT ~6x. We currently have no rating on TGS/PGS due to our role as advisor to PGS in the merger.
Q4 EBITDA beat and mixed guidance
After the disappointing sales update earlier in the quarter, TGS/PGS reported a solid EBITDA beat in Q4, mostly driven by better margins from TGS’ OBN segment. Guidance was more mixed though, with slightly higher costs/capex guided from PGS (mostly driven by higher activity), and a weaker winter market for contract work. The major impact to estimates is however TGS’ MC investment guidance, seen down to USD 325m (mid-range) vs. USD 400m expected. According to the company, the decrease is to focus on returns rather than low interest from clients.
2024e cashflow up ~20% on more favorable sales-mix
Reflecting lower investments (less capitalization of costs) we lower 2024e EBIT/EPS by 14%/20% for the combined company. Cashflow estimates are consequently higher, as lower MC investments and even higher prefunding-levels than expected is positive for near term cashflow, and we lift unlevered FCF estimates by 20%. We see 2024e combined revenue up ~10%, slightly above E&P spending at ~7%. The y/y increase is driven by expectations of a significant rebound in late sales, up ~25% y/y on high assumed transfer fees, with contract sales up ~14% y/y and early sales down ~10%. Thus, 2024 is expected to have better cashflow on a more favorable sales mix and lower investments.
2024e EV/FCF yield at ~15%, EV/EBIT ~6x
While seismic and exploration spending continues to lag overall E&P spending, and with no sharp recovery expected in 2024, we continue to find TGS/PGS attractively positioned in what is arguably the most consolidated oil service segment. Noting high uncertainty to estimates, the combined company now trades at a FCF yield of 15% un-levered for 2024e, with EV/EBIT ~6x, excluding any merger synergies.
PAS
