The current boom cycle in oil and gas has unbelievably benefited the companies in AlphaValue’s Oils equity research coverage. Integrated Oils have particularly been the clear winners (+42% YTD) ― stronger than the previous boom cycles such as 2008 and 2011-14 thanks to more-than-ever robust balance sheets.
The same outstanding performance, however, is not observed in the Oil Services subsector, trading 25% down ytd. Several issues including financing troubles, project delays, and stumbling revenue recognition have stemmed the sector’s performance, albeit an overwhelmingly positive narrative. Let’s look at PGS, a Norwegian-integrated company in marine geophysics. PGS sells multiclient data, contract acquisition, and imaging solutions and benefits from flexibility as it has done so far in 2022.
PGS has gained 79% ytd and the market seems to have been appreciating the momentum. The stock, however, is still trading significantly below 2008 and 2012 levels, a performance that is in stark contrast to the Oils sector and the Integrated Oils subsector performance.
The stock, we believe, is a strong call option for daring investors as underlying financing issues remain sticky. Cash flow from operations rose to the highest level since 2018 but a very significant portion of revenue growth was driven by higher prices (35% in contract rates). Higher prices are great, but higher volumes are even better as they signal a more sustainable outlook.
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