Unfortunately, inbound orders were very weak, at roughly $400 million versus $1.9 billion of revenue, or a paltry book/bill ratio of 0.21. Orders with peers were also down this quarter, but not nearly as much: Technip posted a book/bill of 0.79, and Saipem's ratio was 0.52. All things considered, we're leaving Subsea 7's fair value at NOK 124 and its moat rating at none, and we think this quarter is a good illustration of the disparity in results between firms with a moat (Technip has a narrow rating) and those without (Subsea 7, Saipem) when conditions worsen.
Fortunately, execution at Subsea 7 is clearly improving. This is most notably the case in Brazil with the Guara-Lula project, where the full-life project loss was reduced again by roughly $40 million (and a total of $75 million for the year, so far). As such, Subsea 7's results in Brazil will handily beat our forecast for the year. We had estimated an operating profit of $50 million, and with the loss reductions Brazil is already at $163 million for the past nine months. Brazil was not the only region performing well--Asia Pacific & Middle East is already generating an operating profit in excess of our full-year expectations, and North Sea & Canada is still on track to meet expectations. Unfortunately, the Africa, Gulf of Mexico & Mediterranean segment took charges related to schedule changes after the breakdown of a third-party vessel for Pemex's Line 67 project, as well as timing issues at two west African projects, and we will be revising our estimate for the segment lower as we update our model.
.jpg)
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/FGC25JIKZ5EATCXF265D56SZTE.jpg)
