SBM Offshore Faces Investor Discontent Following Disappointing Results and Debt Concerns

Shares of SBM Offshore (SBMO) experienced a sharp decline on Thursday as the offshore oil platform builder announced disappointing financial results. The company, known for its floating platforms for oil production, storage, and transshipment, revealed a 66% plunge in profits, a 15% drop in sales, and mounting debt, leaving investors concerned about the company’s financial health and future prospects.

During morning trading, SBM Offshore’s shares plummeted by 10%, marking the most significant drop in the last three years. The downward spiral, however, saw a partial recovery later in the day.

Despite having issued warnings about challenging market conditions in the previous quarter, SBM Offshore’s actual performance was worse than anticipated by analysts. The effects of disrupted supply chains, ongoing pandemic-related disruptions, and inflationary pressures contributed to the disappointing results.

In the first half of the year, SBM Offshore reported sales of $1.5 billion and a profit of $36 million, a stark decline from the $103 million reported during the same period last year. These figures fell notably short of analysts’ expectations, who had predicted an average profit of $89 million.

The company’s gross operating income, as measured by earnings before interest, taxes, depreciation, and amortization (EBITDA), also failed to meet projections. With an EBITDA of $457 million for the first half of the year, SBM Offshore fell below the anticipated $526 million, underscoring the extent of the challenges faced by the company.

The persistent impact of logistical issues and COVID-19 disruptions, coupled with supply chain challenges on a global scale, has been a significant hindrance to SBM Offshore’s operations. The company’s reliance on China, where strict COVID-19 measures were enforced, played a role in these challenges.

During discussions, Bruno Chabas, a senior executive at SBM Offshore, reassured analysts that the company remains optimistic about its future prospects. He emphasized the company’s commitment to its full-year revenue forecast of nearly $3 billion.

One division of SBM Offshore, which leases platforms to clients, has weathered the storm better than the other. The division responsible for delivering turnkey platforms struggled, reporting a loss of $37 million, a sharp contrast to the $16 million profit reported in the previous year’s first half. The losses were attributed to high costs and challenging market conditions.

Investor concerns were further fueled by the company’s substantial debt levels, prompting disappointment and questions about the lack of a share buyback program. With an order book valued at $32.2 billion, SBM Offshore’s debt has increased from $6.1 billion to $7.2 billion due to growing investments. This trend has raised concerns about the company’s adherence to its bank covenants.

Kepler Cheuvreux analyst André Mulder expressed surprise over the company’s financial performance and debt concerns. He noted that investors had also hoped for a share buyback program, given the stock’s consistent trading at a significant discount for several years. Mulder believes that SBM Offshore’s high debt levels currently deter the initiation of such a program.

Chabas defended the company’s position by asserting that prioritizing increased cash flow is the best strategy to create long-term value for shareholders. He highlighted SBM Offshore’s efforts to secure new contracts and pursue growth opportunities.

Mulder speculated that a more opportune time for a share buyback program might come when the company’s debt is reduced, as the sale of ships over the next few years is anticipated to release approximately €4 billion. He suggested that the first billion might become available by the year’s end, which could pave the way for a share buyback initiative.

As SBM Offshore navigates these challenges, investors are keenly watching for signs of improved performance and potential measures to address the company’s financial concerns. The company’s ability to regain investor confidence and stabilize its financial standing will be critical in the coming months.

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