Archer Ltd. (ARCHER), an oilfield services provider, dropped to a one-month low in Oslo on a slower-than-expected recovery in profit margins as energy producers rein in spending on exploration and development.
The stock fell as much as 6.9 percent to 4.75 kroner, the lowest intraday level since Aug. 1, and traded at 4.83 kroner at 11:03 a.m. Trading volumes already exceeded the three-month daily average.
Archer is trimming its operations after a drop in prices for land-based oil services in North America. The company last week reported second-quarter earnings that missed estimates, hurt by continued weakness in the U.S. and Brazil and the temporary shutdown of a field off Norway.
Danske Bank has cut its earnings estimates for 2013 and 2014 “based on our impression that a recovery towards normalized margins will take longer than previously expected,” the lender said yesterday. “On the lack of near-term triggers and valuation reasons we downgrade the stock to sell and reduce our 12-month target price to 4.1 kroner from 6.6 kroner.”
Archer, in which billionaire John Fredriksen’s Seadrill Ltd. (SDRL) owns a 39.6 percent stake, has seen its shares decline more than 50 percent during the last 12 months after breaching covenants on its credit facilities. It sold its North American rental and tubular unit for $244 million this year as it seeks to cut debt.
The company is now “comfortably in compliance with covenants,” RS Platou Markets AS analyst Turner Holm said in an e-mail today. “We expect Seadrill will provide additional guarantees or liquidity should the need arise.”
While Archer’s results are suffering from high fixed costs and low margins, the Hamilton, Bermuda-based company’s strategy of increasing the efficiency of its North American operations, upgrading its technology and investing in high-return opportunities should result in a “significant improvement” in earnings, said Holm, who has a buy rating on the stock.
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