With soaring oil prices (+50% since the beginning of the year at today’s point), the Stock Exchange had imagined that the activity of CGG, which specializes in the study of underground , was going to take full advantage of it since its turnover depends on investments in exploration-production by oil companies, which are naturally more willing to spend money to discover new fields when the price of crude oil at least covers the costs. .
So, after the fall in investments in 2020 following the health crisis – companies like TotalEnergies and Saudi Aramco had then drastically reduced their expenses in order to protect their profits and the dividends paid to their shareholders -. and a timid recovery in 2021, the year 2022 was full of promise with, at the beginning of March, a rise in Brent to more than 130 dollars per barrel, the highest since 2008. And now, this morning, CGG announces, at the occasion of the publication of its first quarter accounts, a decline in its turnover (-28% to 153 million euros). It is the disillusionment on Euronext Paris, where the shares, down 20% to 95 cents, sign the biggest drop of the day, while remaining in the upper part of the charts since the beginning of the year (+ 50% ).
Just delay?
The financial analyst Nicolas Montel, of the Portzamparc firm, owned by the BNP Paribas group, notes, surprised, that the results of CGG are “widely” below expectations. The gross operating surplus, at 39 million (+31%), is three times lower than what the financial community had expected, while the operating result, expected to be profitable, shows a loss of 5 million euros. In view of the quarterly copy made by the French company, capable of transforming into images the signals with broad band of frequencies sent in the basement, Nicolas Montel does not advise any more to buy CGG on Stock Exchange; it now has a recommendation to “hold”, with a target lowered to 0.81 euro (i.e. still 15% below the current price).
Analyst Baptiste Lebacq, of the private bank Oddo BHF, maintains his advice as “neutral” and his target of 1.18 euros, on the observation of a start to the year qualified by him as ” difficult “. The scenario is now that of a gradual ramp-up over the next three quarters with, according to indications from CGG’s management, an acceleration in decision-making and spending by client oil companies in the second half of the year. There is a lag in sales over the second half of the year. CGG shows its confidence and confirms its financial objectives for 2022, namely, in particular, a 10% growth in its turnover.
Financial analysts, if they also anticipate an increase in invoicing, are nevertheless more moderate, especially since, in the recent past, CGG has regularly missed its targets. At Portzamparc, Nicolas Montel expects growth of 7.4% where, overall, the consensus is closer to 5%. “The rise in oil prices should initially benefit short-cycle projects and development capex [sur les gisements déjà découverts]. Secondly, a recovery in exploration spending seems more and more likely, even essential.”, we conclude at Oddo BHF. If the West wants to do without Russian hydrocarbons, it will have to invest, and not only in renewable energies.
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In the meantime, CGG is undergoing its biggest stock market plunge since mid-March 2020 when the announcement of the first confinements in Europe caused stock market panic.