Saipem, that’s why analysts reject Caio (will he be replaced by Eni and Cdp?)
Many reports on Saipem bring directly the Caio management into play. While the shareholders (Eni and CDP) are studying the capital increase, Mediobanca is opening a beacon on the maturing bond and the top is in the balance. Facts, numbers, comments and rumors
Saipem continues to sink. Not only in Piazza Affari.
Two days of tumbling on the stock market: after the communication on the large losses expected in the statutory financial statements for 2021 (for over a third of the share capital), on Tuesday Saipem's shares continued to lose value on the Milan stock exchange. The company, controlled by Eni and Cdp Industria, sold 29.3 percent (1.36 euros). And also on Thursday 3 February it closed in negative territory: minus 6%.
Shareholders are now working on two fronts: debt, with a billion dollar loan to be restructured with banks (with an expiring bond that keeps investors anxious, according to Mediobanca), and capital to make up the 2021 losses, which the market estimates it to be 2 billion, to be smoothed out with an increase of around 1.5 billion.
“It is not certain that the“ maneuver ”will be made by the managing director Francesco Caio, in the eye of the storm due to the sudden U-turn on the estimates. Eni and CDP are thinking about whether to support him with someone who strengthens management, even in the eyes of the market ”, wrote Repubblica today.
According to the comparison in progress in these hours between the two reference shareholders Eni and Cdp Industria, the need is emerging for Saipem to first of all review the management-operational structure which would be – according to the reconstruction of the Sole 24 Ore – the "vulnus ”From which the shock wave on the accounts started and with respect to which the shareholders would be evaluating – but nothing has yet been decided – a management support operation.
In fact, on the managerial-operational front, the significant criticalities in terms of risk assessments of orders would have occurred, “which would then lead to the revision of the backlog underlying the cut in estimates announced last Monday. And it is therefore on that front – it is the reasoning that circulates between the two shareholders – that Saipem's board must carry out the necessary assessments and take the consequent decisions ”, added the economic-financial daily.
According to Startmag 's reconstruction, Caio will not be replaced now also because Eni and Cdp want to understand the scope and reasons for the profit warning and if there were any responsibilities of some kind – or just a mere underestimation of negative events or factors – in the conduct of the number one by Saipem.
TOWARDS A NEW SAIPEM?
Yet, only last October, the CEO Caio, in presenting the four-year strategic plan to 2025 that should have led to a "new Saipem", spoke of investments for 1.5 billion euros and of the company as a " technological enabler of low-carbon strategies ". On the other hand, compared to the outlook offered about three months ago, EBITDA and revenues fell by 1 billion.
Now, however, the stock market abyss after the third profit warning: a situation that brings back rumors of a potential exit of Caio, perhaps to go to some state subsidiary ( here facts, names and rumors in a Start Magazine article )
TOWARDS THE CAPITAL INCREASE: ENI AND CDP IN THE FIELD
The hypothesis of the capital increase is strengthened, moreover suggested by the same rules mentioned in the company note (article 2446 of the civil code). And the banks are also watching carefully on debt: at this moment above all on the revolving credit facility of one billion euros, maturing in 2023 and containing a financial covenant clause that provides for compliance with the financial debt ratio net and Ebitda, to be recorded on the basis of data as at 31 December, no more than 3.5 times. "The credit line signed in 2015 was revised in 2018 when it was decided to reduce the amount (originally set at 1.5 billion) and to extend its maturity (taking it from December 2020 to July 2023). And now the banks are back in the field, to understand how to move in the face of the new difficulties ”, wrote Il Sole 24 Ore .
DOSSIER BOND
The eyes of operators and professionals are focused on Saipem securities of 500 million, with a fixed coupon of 2.75%, issued in 2018 and expiring on 5 April, according to La Stampa: "To raise the alarm, between the lines , a note yesterday by the analysts of Mediobanca Securities, according to which, in light of the new estimates on the negative results of 2021 released by surprise by the company two days ago, "the available liquidity", calculated at 700 million in a framework that is defined «Unclear», it may «not be sufficient to repay the bond maturing in April, and to cope with the increase in net debt during 2022» ”.
THE OPINION OF BANCA AKROS
But what do financial analysts and investment banks think of the Saipem case?
Banca Akros updated the estimates on Saipem in light of the new numbers, lowering the target price on the share to 1.7 euro (from 2.2) and reducing the rating to reduce (from neutral ).
"MANAGEMENT ERRORS"
Kepler Cheuvreux said it was "truly surprising, in our opinion, to see that less than three months after Capital Markets Day the company issued a warning , which raises a lot of management questions." The size of the warning , he adds, "clearly highlights management errors".
WHAT BESTINVER THINKS
Bestinver Securities claims – as reported by Mf / Milano Finanza – that "the profit warning and the need for a capital increase come as a cold shower, as Saipem presented its 2021-2025 industrial plan on 27 October last, excluding the risk of a capital increase, confirming positive EBITDA in the second half of the year and indicating very ambitious objectives for the next few years ".
As recalled by Bestinver, Saipem went through a capital increase of 3.5 billion in 2016 and accumulated losses of 1.9 billion from 2017 to 2020; to the sum must be added losses of around 2 billion in 2021.
“We believe that such a structural change in prospects only three months after the presentation of the industrial plan could undermine the market's confidence in management”.
THE JUDGMENTS OF INTESA SANPAOLO AND MEDIOBANCA
Intesa Sanpaolo confirms its hold opinion and target price of 2.1, but is looking at the capital increase with concern.
Mediobanca Securities also leaves its judgment and target price unchanged ( neutral and € 2), but points out that yesterday's is "the third consecutive profit warning since management took over the company last year".
"More importantly," he continues, "investors will be wondering whether new capital and the potential dilutive impact on valuation will be needed for the company's shareholders, such as during the latest rights issues in 2016."
WHAT BARCLAYS SAYS
Barclays writes that “Saipem's future, in its current form, is once again shrouded in uncertainty. The only positive aspect is that Saipem owns two major strategic holders in Eni (30.54%) and CDP (12.55%) who have so far been supportive over Saipem's long-standing problems. Furthermore, its core business is in an improving market ”.
What “went wrong” for Saipem, says Barclays, are the difficulties encountered in the offshore wind project in the North Sea, which have raised its costs, and the increase in the prices of raw materials and logistics.
"History suggests that early cost estimates are often very conservative," notes Barclays. "Therefore, the company faces a prolonged period of low margins and the recovery path presented by the new management […] at the end of October 2021 is no longer valid".
“The speed of the change will likely cast a shadow on the new management, which only presented its vision at the end of last year. However, at the time, the ongoing risks were highlighted. We find it hard to believe, however, that investors had a worst-case scenario as severe as the cost overruns just announced. "
Barclays argues that some of the problems Saipem has encountered are “self-inflicted”, such as obtaining contracts “with sub-optimal terms”. The rest of the problems are the "result of market conditions for equipment and materials", although – notes the British bank – "not all companies will face the same challenges" because "different contractual conditions and different stages of execution mean that all they will face different challenges ”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/saipem-eni-cdp-caio-2/ on Thu, 03 Feb 2022 06:35:23 +0000.