Well, TGS Nopec (TGS in Oslo, TGSGY for the pink sheets ADR) did indeed release earnings yesterday … and they were about what they had indicated they would be: worse than last year.
The stock reacted very mildly, it’s moved up gradually over the last week or so as investors have gotten a bit more confident that perhaps the fall from their nosebleed growth levels is done now — and the company reinforced that with their optimistic comments about next year, they noted that they have three major surveys planned now, including one with industry partner PGS, that are getting at least some prefunding even though prefunding levels have been, as they indicated, down substantially recently. Prefunding in the quarter was 39%, roughly what they predicted.
And importantly for me, late sales continued to be strong — it wasn’t a record quarter, but they still generated $138 million in high-margin revenue from their existing library, enough to generate $118 million in cash flow from operations (remember, cash flow is a good number to watch because it doesn’t include the large non-cash amortization charges as they write down their library of data on a four-year cycle). Earnings per share, a less useful number, still puts them at annualized earnings of over $2 as of this quarter, and this is not a particularly strong quarter seasonally so I expect actual earnings to be stronger. The big scary topline number, revenue down 22% year over year, was expected and reflects, at least in part, some discipline at the company in not taking on unprofitable or risky surveys.
I continue to like what I see in terms of fiscal discipline, though it is heartening that they do have three significant new or expanded multi client surveys underway to keep the library growing. I think it’s still reasonable to buy the shares up to about 160 Kroner (that would be roughly $27), but there’s not likely to be a sudden spurt of growth in the near future so I don’t see any need to chase the shares up if they continue to rise, it’s certainly possible that expectations could be cut again in the future and the shares could fall — and a falling oil price would also generally be a headwind. The company has paid a decent dividend yield in the past, ...