Viridien - comment

The Q3 result was strong; the company reaffirmed its $100m net cash flow expectations for the full year. Repayment or factoring of $50m in overdue receivables (from Pemex) could add another $20m to net cash flow in Q4. Veridien intends to use a proportion of its cash to continue buying back and calling bonds under the terms of the indenture, which will continue to support the price.

Geoscience Revenue is up 13% YTD, and despite the lower oil price, there has not been a cutback in E&P budgets. If the oil price is persistently <$50 next year, we would expect some tightening of spending on surveys. Earth Data revenue was up 21%, and relicensing fees were important in the quarter due to M&A activity, so we may see a drop in Q4. The value of the Earth Data library is $534m, which equates to a 50c/$ recovery for the SSNs. EBITDA from the two divisions is up in line with revenue, so Veridien is not sacrificing margin for volume.

Sensing & Monitoring were stronger than we thought, as marine order rebounded in Q3 (still -24% YTD). EBITDA margins were higher, reflecting fixed cost recovery in this manufacturing business.