YWR: Learning to love Saipem again.
God says we need to forgive.
God says sinners get a second chance.
God’s right. And so we learn to love again one of the great train smashes of all time. Saipem.
And because there could be +70% upside to EUR 4/share in 2027, plus divies.
The Fall from Grace
The Resurrection
Learning to Walk Again
The Under appreciation of Subsea
The Road to EUR 4/share
Saipem Earnings Model
The Fall from Grace
Saipem used to be a darling of subsea services.
During the 10 years from 2002 to 2012 it 6x’d from EUR 18 to EUR 125.
Back in the day everyone loved it. The emerging middle class would need greater supplies of oil and gas. This new supply would surely have to come from underwater projects, which would keep getting deeper, more complicated and expensive. Or, so the so the story went.
Back then integrated energy companies had no spending discipline. Their KPI was production growth, not free cash flow. And so the best play on the energy cycle was not integrated energy companies, but instead to follow the money to the end beneficiaries like Saipem and Subsea 7.
Saipem’s combination of high spec subsea construction ships, drilling rigs and onshore construction captured every aspect of the energy bull market. In 2012 the company was generating 11-12% EBIT margins on EUR 13 billion in revenues and earning EUR 900mn in net profit annually.
But that was the peak.
By 1H 2013 the problems started. Onshore US shale was providing an easy alternative to expensive, complicated offshore oil and gas projects. But the real problem became onshore construction where Saipem had underpriced and mismanaged its projects. In 1H 2013 Saipem lost EUR 595mn in E&C Onshore and was losing money in offshore too.
Saipem’s debt at EUR 5 billion was also getting out of hand.
What followed was an epic train smash from EUR 125/share to EUR 1.
Non-stop losses on onshore projects.
Court cases and accusations of bribery in Algeria and Brazil with a EUR 192 mn provision for fines.
Oil price wars between Saudi and the US shale drillers.
Negative oil prices during COVID.
And 5 billion in debt.
It was too much.
In 2021 Saipem lost a staggering EUR 2.5 billion.
Saipem needed an emergency rescue.