Aker Solutions Drops as Weaker Margins Offset Orders: Oslo Mover

Aker Solutions ASA (AKSO), the oil services group controlled by billionaire Kjell Inge Roekke, dropped the most in two months in Oslo as stronger than expected orders in the second quarter failed to offset concerns about weak margins.

Shares in the company, based in Oslo, lost as much as 4 percent, the most since June 27, and traded 1 percent lower at 89.7 kroner as of 11 a.m. About 720,000 shares have been traded so far today, almost 85 percent of the average daily volume during the last three months.

Aker Solutions is starting to see oil and gas companies delaying projects, the company said in a statement today. “Concern about constraints on oil-company cash flow has increased uncertainty about future investments,” Executive Chairman Oeyvind Eriksen said in a presentation in Oslo.

Aker Solutions is betting on growing demand for subsea services with established oil fields maturing and new finds becoming more difficult to develop. The shares fell the most in 4 1/2 years in April after it warned first quarter profit would miss estimates on higher costs at the Ekofisk Zulu platform, losses at the umbilicals and oilfield services and marine assets divisions, and lower margins at several other units.

The company today reported second-quarter earnings before interest, tax, depreciation and amortisation of 946 million kroner ($156.6 million), down from 1.4 billion kroner a year earlier and missing the 1 billion kroner average of 16 analyst estimates compiled by Bloomberg.

Weaker Margins

The company also reported an Ebitda margin of 7.9 percent, missing RS Platou AS’s own forecast of 8.7 percent “on weaker than expected margins in engineering solutions and a negative contribution from corporate items,” analyst Goeran Andreassen said in an e-mailed note.

Order intake of 10.9 billion kroner beat Platou’s 9.9 billion-krone estimate, said the analyst, which has a buy recommendation on the stock.

“Uncertainty has undeniably increased,” Eriksen said. “But in our direct dialogue with customers, the signal is still a high activity level within our core segments. We maintain an optimistic view on our regions and segments,” he said in an interview. Engineering margins are expected to improve during the second half, Eriksen said.

“We remain concerned about the company’s ability to convert the volume of work they are awarded into solid margins,” Bank of America Merrill Lynch analyst Fiona Maclean said in a note. The investment bank maintained its underperform recommendation on Aker Solutions.

Pareto Securities AS expects to reduce its earnings estimates for the company’s engineering unit for the second half and 2014, “negatively impacting overall estimates by about 2 percent to 3 percent,” it said in an e-mailed note. The broker has a buy rating on Aker Solutions.

To contact the reporters on this story: Mikael Holter in Oslo at mholter2@bloomberg.net; Stephen Treloar in Oslo on at streloar1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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