Acergy Reaffirms 2010 Guidance - Analyst Blog - Chevron (NYSE:CVX)

Oilfield contractor Acergy S.A. (ACGY) has reaffirmed its 2010 financial guidance. The Norwegian firm maintains that not withstanding some challenging short-term market conditions, it has delivered a strong operational and financial performance throughout the year.

Acergy remains on track to meet its 2010 revenue expectations (anticipated to be in line with 2009), while EBITDA margin is likely to be slightly ahead of the 2009 result. Effective rate of tax is expected to be approximately 35%. Acergy anticipates cash balances at the end of the fiscal year to be approximately $490 million, after accounting for capital spending of $500 million and shareholder dividends of $42 million. The company expects to end the year with a backlog of approximately $3.5 billion (including roughly $1.7 billion for execution in 2011). Additionally, Acergy is set to bear $120 million of depreciation and amortization costs.

Looking at the medium-term business environment, Acergy anticipates a spate of major contract awards later this year and in 2011. However, the subsea services player sees limited visibility in the North Sea, where projects are slow to reach fruition. Pricing environment for shorter-term work in the region also remains very competitive.

Regarding the proposed merger with Subsea 7, Acergy expects the deal to close in January 2011. In light of the timing of completion, the London-based service provider did not give guidance for fiscal year 2011 presently.

Acergy S.A., previously known as Stolt Offshore S.A., is engaged in the designing, procurement, building, installation, and servicing of a range of offshore surface and sub-surface equipments for the oil and gas industry. These equipments include the above-water topsides and platforms used for processing oil and gas, pipelines, and electrical and hydraulic cables (also called ‘umbilicals') used to control sub-sea wells. The company also provides field-decommissioning services (the removal of offshore structures and equipment) after the field has been depleted and has to be abandoned.

Acergy currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term 'Neutral' recommendation on the stock.

In recent years, Acergy has divested non-core assets and strengthened its balance sheet. While the commodity price and credit market turmoil have affected the overall oilfield service landscape, Acergy, with its high-quality client base that mostly includes well-capitalized oil majors or national oil companies – like ExxonMobil Corp. (XOM), Chevron Corp. (CVX), Petrobras S.A. (PBR) etc. – has performed pretty well. We believe that the impending merger with Subsea 7 will create a global leader in seabed-to-surface engineering and construction, thereby helping the combined entity to dish out a broader array of services.

However, a lackluster North Sea market, delay in Gulf of Mexico project awards and a competitive bidding/pricing environment in the near-term are expected to weigh on Acergy's results.

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