“Encouraging” and “impressive” were the adjectives used by two analysts to describe their views on Technip Energies following last month’s capital markets day (CMD).
Mick Pickup at Barclays said in a research note that the “encouraging CMD confirmed our long-held belief that, if the energy transition is to succeed, it will need a variety of tools to do so and that the process engineering skills of the engineering and construction sector could play a significant role.”
Technip Energies, he wrote, highlighted a raft of technologies that it has helped develop, “all of which could have a meaningful role as the world decarbonises and underpin what it expects to be a medium-term, top line growth story”.
Pickup noted the company expects margins to grow from “trough” conditions in 2020, while stressing it may “still face some challenges with investors (because) the exceptional Yamal (liquefied natural gas project) contract is winding down and the expected margin improvement is likely more a 2023 event”.
Yamal LNG is a Novatek-operated project in northern Russia.
He also pointed out that with LNG a major component of its business mix, it is unclear if environment, social and governance (ESG) funds will be able to buy Technip Energies stock.
While lauding the company's energy transition story, Pickup stressed that the projects materialising are still small and "investors cannot expect to see the transition element (excluding LNG) become dominant in the near term.”
On finances, he said the balance sheet “is strong” and is in the top tier for “cash management".
Cowen analyst Marc Bianchi said that, while “we found the CMD impressive, the incremental disclosure around the energy transition may not have been enough to catalyse a valuation re-rate”.
“Additionally,” he said, “lack of clear guidance on cash flow or obvious upside to 2021 earnings before interest and tax may have disappointed some. We still like the stock and believe (the company) should get a higher valuation, but struggle to identify a near-term catalyst.”
Bianchi added that, although Technip Energies has a lot of industry experience in decarbonisation and hydrogen, “it was not entirely clear what differentiates the company from competitors beyond some alliances with Neste, Shell and Air Products”.