“We anticipate the unwinding of a 15-year inflationary bull market in oil investment and see potential for costs to fall by 20-30% in order to restore project economics,” the investment bank said in a report on the Australian engineering and construction scene.
“We also think that under our current oil price forecasts, the international oil companies/national oil companies will cancel/defer capital/technology intensive projects in favour of investing in low-cost projects through mergers and acquisitions.”
Noting that the oil price correction was drastic as Brent crude falls 58% from its mid-2014 peak of $US115 a barrel to $48/bbl this week, Goldman slashed its earnings per share and target price estimates for various oil-exposed engineering and construction companies.
The bear market in oil was expected to be a “major headwind for WorleyParsons’ revenue outlook with Goldman slashing its 12 month target price for the stock from $12.90 to $8.60.
ALS Limited, which ended up with a “significant exposure” to the North American oil scene courtesy of its recent takeover of Reservoir Group, had its 12-month target price lowered from $4.87 to $4.40 (9.7% fall).
Imdex’s oil and gas instrumentation business was seen as vulnerable with Goldman cutting its 12-month target price for this stock from 60c to 41c.
The 12-month target price for Transfield Services was lowered from $2.00 per share to $1.85.
Considered a key player in Australia’s evolving CSG-to-LNG industry and an operator in the US refinery maintenance sector and the Canadian oil sands shutdown/maintenance market, Goldman estimated Transfield to have about 27% of its revenues flowing from oil and gas clients.
Bradken Steel, estimated to make 10% of its revenues from the oil and gas industry through its consumables and engineered products business, had its 12-month target price lowered just 2% to $5.30 per share.
However, Goldman has a buy rating on this stock which recently fielded a non-binding $5.10 per share takeover offer.
“Subsequent to the announcement of this offer, Bradken has advised that it has received additional inbound enquiries that it is considering,” Goldman said.
