Aker Solutions Falls After Reversing Longview Profits

Aker Solutions ASA, Norway’s biggest maker of oil platforms and equipment, fell in Oslo trading after saying it will reverse booked profits from its Longview coal-fired power plant project in the U.S. in the third quarter.

Aker Solutions dropped 6.15 kroner, or 6.9 percent, to 82.40 kroner at 5:30 p.m. local time. The stock has gained 9.2 percent this year, after surging 67.7 percent last year.

The process and construction business area “will report slightly negative earnings before interests, tax, depreciation and amortization,” the company said yesterday in a statement. The $654 million contract was awarded to the company in 2007 as part of a $1.1 billion project with a unit of Siemens AG.

“Yet another skeleton,” analysts including Fiona Maclean at BofA Merrill Lynch said in a note, cutting their recommendation to “underperform” from “neutral.” The “release once again highlights what we regard as the perennial problems Aker Solutions has faced across the business over the last few years.”

SEB Enskilda analyst Terje Fatnes downgraded the stock to “sell” from “hold” while Carnegie ASA cut its 2010 earnings before interest, tax, depreciation and amortization estimate by 4 percent “on the back of the Longview profit warning,” according to an e-mailed note.

Delays, Costs

The project is scheduled to be completed in the middle of next year, Lysaker-based Aker Solutions said. The development is delayed and costs have risen partly because of force majeure events, project changes, and third-party actions in furnishing engineering services, equipment and materials, the company said.

“There is uncertainty with regard to remaining work and the financial outcome of the project,” Oeyvind Eriksen, the company’s executive chairman said in the statement. “In light of this we will reverse profits that have been booked.”

Geir Arne Drangeid, a company spokesman, declined to be specific about the numbers, citing considerations to clients and partners in the project.

“If you go back and look at quarterly reports you will see that the P&C business area would typically produce a profit, Ebitda, of 110 to 140 million kroner,” he said. “What we now say is that the third quarter number will be a small minus. The difference between the small minus that we are now informing about and the typical results would then be the number for the reverse profit.”

In August, the company agreed to separate the process & construction unit, which accounted for 11 percent of Ebitda in 2009, from the rest of the company. This could be done through a stock listing or a sale by the end of the year, Eriksen said at the time, declining to give an estimated value for the unit.

Yesterday’s announcement “makes a potential divestment/sale more difficult,” analysts including Truls Olsen at Fearnley Fonds said in a note.

Chief Executive Officer Simen Lieungh left the company in June in agreement with the board. Aker Solutions in August reported second-quarter net income fell to 445 million kroner from 772 million kroner a year ago.

“If the Longview profit warning is the only skeleton in the closet and profitability stabilizes at current levels, Aker Solutions stands out as a bargain,” Carnegie analyst Frederik Lunde said in a note yesterday. “Given the depressed valuation, we believe that neither earnings growth nor strong order intake is needed to support Aker Solutions’ share price.”

Lunde has an “outperform” rating on the stock.

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