The three companies that can continue to benefit from the energy 'rally' on the stock market
In the global environment with great geopolitical tensions and record energy prices, investors are increasingly looking for assets related to oil and gas, especially oil service companies. Are there possibilities from the investment plane? In reality, every day there are fewer interesting assets in which to invest at a competitive price, because certain companies in the sector have already reached their main growth potential and will not show significant returns in the short term. But there are exceptions.
Since Freedom Finance Europe They have chosen three of the most interesting oil service companies from their point of view to talk about in this selection. The average of the experts estimates that in the coming years the price of oil will remain high. “If so, we can expect a similar dynamic to that observed in the market between 2010 and 2014 (see the graph below), when the increase in the price of Brent (orange line) led to an increase in the number of oil platforms (purple line) . As can be seen in the graph, although in the last year there has been a rise in the number of platforms, there is still a long way to go for it to continue to rise, ”they analyze from the broker.
"In the two years between March 6, 2009 and March 6, 2011, the S&P Oil & Gas Equipment Select Industry Index almost tripled, going from 1,493.5 to 4,341.2," they expose from Freedom Finance Europe. With the current context, the desire of world leaders to reduce dependence on oil supplies from Russia is expected to work as a growth engine for oil service companies. "In this context, we expect an increase in investment in the development of new deposits, whose beneficiaries could be the oil companies of this selection," they specify from the stockbroker.
The three companies of most interest
Following this analytical thread, experts see three businesses as attractive in the current scenario: Schlumberger NV, Halliburton and ChampionX Corp, due to different factors based on fundamental analysis. The first of all, which is the world's number one provider of oil services and a leader in technologies for integrated reservoir evaluation, well drilling, production management and hydrocarbon processing, has the capacity for future growth.
According to experts from Freedom Finance Europe , the option of transferring Russian assets to local management is being considered. "Even in this case, the losses could easily be offset by higher demand from other countries, since Russia represents only 5% of the company's revenue," they highlight. Schlumberger has increased its revenues in North America by 32% in the last year, and they have come to represent 21% of the company's total revenues. A factor that would provide an attractive investor. "The expansion of the business in that country will allow Schlumberger to further increase its revenue share amid growing interest in shale oil production," the analysts add. In addition, the company is developing its Digital & Integration segment, in which it achieved a pre-tax operating margin of 34% at the end of the first quarter. Further development of this segment could accelerate the pace of its revenue growth.
The company posted a 14% year-over-year increase in revenue in the first quarter, which translates to $5.962 billion. The operating profit before taxes in the first three months of the year did the same with an increase of 35%, going from 664 to 894 million, while the operating margin before taxes went from 12.7% to 15.0% and the net profit margin rose from 5.97% to 8.72%. "To this we must add that the company improved its net debt to EBITDA ratio, going from 3.48 times at the end of the first quarter of 2021 to 2.24 times at the end of the first quarter of this year," they highlight. In addition, the management team has approved a dividend payment of $0.175 per share, which corresponds to a nice bonus of ~1.7% dividend yield.
In the case of Halliburton, it is one of the largest oil and gas services companies in the world, with services in more than 80 countries. As they comment from Freedom Finance Europe, it is a firm that can benefit from this situation because it obtains almost half (45%) of its income from the North American segment, where the country's president recently extended federal land leases for oil production. "Halliburton also has a great competitive advantage, its wide range of oil services provided, from the exploration of oil fields to the abandonment process," they comment. Meanwhile, it maintains a policy of active development of the Halliburton 4.0 automation segment to improve productivity.
Another fundamental aspect is that the company registered an increase in revenues in the first quarter compared to the previous year of 24%, earning 4,284 million dollars, compared to 3,451 in the same period of the previous year. It increased its operating income by 38% and its net income by 54%, to $511 million and $264 million. “Like Schlumberger, Halliburton is preparing for rapid growth in 2022 through lower cash flow for the first quarter of this year compared to the first quarter of 2021: operating cash flow was -50 million of dollars compared to 203 and the free cash flow of -239 million dollars compared to 99 », describe the experts.
Halliburton is also reducing its net debt: First-quarter results show a year-on-year decline of $7,196 million to $6,376 million, with cash and cash equivalents down $2,446 million to $2,154 million. Net debt/EBITDA was reduced from 3.32 to 2.21 times. The company pays a dividend of $0.12 per share, giving a dividend yield of about 1.3%.
ChampionX Corp, a provider of chemical solutions as well as equipment and engineering technologies useful for oil and gas drilling and production, operates in two segments: 'Production and Automation Technologies' and 'Drilling Technologies'. '. You are setting up your business model to perform well regardless of the industry cycle. This suggests that the company can perform similarly, and sometimes better, than its competitors, both during a period of strong growth in the number of platforms and when the number of platforms reaches a significant level and growth slows down. Freedom Finance Europe. All in all, it would be another good candidate to benefit from the expected shale oil boom in the US, as North America accounts for 63% of the company's revenue.
Its revenue at the end of the first quarter of 2022 grew 26% from a year earlier, to $866 million. Operating profit increased by 74%, from 38.88 to 67.72 million. Their net income year-over-year grew almost 9.5-fold, from $4.04 million to $38.17 million (of which ChampionX accounts for $36.7 million). Like the other companies that Freedom Finance Europe comments on this selection, ChampionX reduced its operating cash flow from 90.21 to -43.12 million dollars, and its free cash flow from 64.64 to -73.72 million dollars (in this aspect, the situation ChampionX, Halliburton and Schlumberger are practically on a par).
ChampionX's net debt decreased from $666.5 million to $540.98 million during the year, while cash and cash equivalents decreased from $259.82 million to $177.11 million. The company pays a dividend of $0.075 per share, giving a dividend yield of approximately 1.4%.
Report a bug
