Aker Solutions Jumps as Profit Margins Beat Estimates

Aker Solutions (AKSO), the Norwegian oil-services company controlled by billionaire Kjell Inge Roekke, rose the most in 20 months in Oslo trading after third-quarter profit margins and orders beat analyst estimates.

Aker Solutions climbed 11 percent, the biggest gain since Feb. 17, 2012, to 91.95 kroner at 3:30 p.m. local time. Trading volume was more than four times the three-month daily average.

The margin on earnings before interest, tax, depreciation and amortization expanded to 9.8 percent in the quarter from 7.9 percent the previous three months, Aker Solutions said in a statement. The contract intake rose 9.2 percent to 11.9 billion kroner ($2 billion), topping estimates at Fearnley Securities AS by 70 percent and RS Platou Markets AS by 78 percent.

“Strong execution drove third-quarter product-solutions margins to the highest level in the last 14 quarters, even despite relatively weak revenue,” Turner Holm, an analyst at Platou in Oslo, said in an e-mail. “The third-quarter report repudiates the concern many investors had on order intake.”

The company’s backlog totaled 60.6 billion kroner at the end of the quarter, 900 million kroner more than a year earlier even accounting for an 11 billion-kroner cancellation from Statoil ASA. (STL) “We expect orders to continue at a high level going forward,” Holm said.

Margins were boosted by the company’s product-solutions division, which accounts for almost two-thirds of sales and includes subsea services, a market set to grow 8 percent to 10 percent a year through 2017, according to the company.

Sales Fall

Aker Solutions, based in Fornebu, said third-quarter net income slumped 27 percent from a year earlier, while revenue slipped 2.7 percent. It expects contracts to come in less regularly as clients focus on preserving cash flow.

“We have to be prepared for somewhat higher fluctuations in the order intake going forward than what we’ve had over the last year,” Executive Chairman Oeyvind Eriksen said today in an interview in Oslo. “There is higher uncertainty.”

Some energy producers are reining in spending to protect shareholder returns as costs increase.

Clients are also increasingly demanding that payments be staggered over longer periods, according to Eriksen, who said Aker Solutions hasn’t made “significant changes” to commercial terms. Prices for services including subsea work and engineering are “stable,” he said.

Aker Solutions said its most important future contract will be for engineering at Johan Sverdrup, which may be Norway’s biggest oil discovery since the Statfjord deposit in 1974. The company expects Statoil and its partners to award the contract late this year or early next, according to Eriksen, who said securing the order is “more important than short-term profitability.”

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

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

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