Acergy Set to Outperform

London-based Acergy S.A. (ACGY - Analyst Report) is a leading oilfield contractor engaged in the designing, procurement, building, installation and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry.

In recent times, the company has been successfully pursing a strategic shift towards the relatively high-margin deepwater markets (engineering and construction) that have braved commodity pricing and credit market turmoil. Deepwater drilling and subsequent construction activities are expected to get a further boost from the arrival of a large number of newbuild rigs in the coming years.

Acergy is one of only four companies providing a wide range of offshore services globally. As such, it remains well positioned to capitalize on the positive outlook for demand in subsea engineering and construction services over the coming years.

Acergy has been relatively untouched by the economic downturn so far, as more than 90% of its contracts are with well capitalized oil majors like ExxonMobil Corp. (XOM - Analyst Report), BP Plc (BP - Snapshot Report), or state-owned energy companies like Petrobras (PBR - Analyst Report). While the occasional delay cannot be ruled out, we believe that most of the projects sponsored by them will remain unaffected.

Buoyed by these factors, the company recently posted better-than-expected second quarter 2009 results. Moreover, Acergy’s strong backlog, currently standing at $2.4 billion, offers long-term earnings and cash flow visibility. This enables the company to navigate through the current downturn better than many of its peers.

Acergy also remains in excellent financial health with about $696 million in cash and a total debt-to-capitalization ratio of 30.8%. This provides adequate financial flexibility to increase its capacity through newbuild programs or strategic acquisitions. Additionally, the company does not have any near-term refinancing requirements.

As such, we view Acergy ADRs as an attractive investment and rate it as Outperform. Our $13 price objective represents 2009 P/E multiple of 14.4X, still at a discount to the industry average.