Lamprell slides on Canaccord downgrade

The brokerage said that while there is a large medium-term opportunity in the various negotiations with Saudi partners, it is doubtful the market will be willing to pay for uncertain 2018+ earnings in the next 18 months.

In addition, Canaccord said it was equally sceptical about what investors are likely to assume in terms of return on capital.

“The current (commercial) market for oil services companies is offering little if any return on invested capital. As a result, we are downgrading the stock,” it said.

Canaccord said that until last week, Lamprell was continuing to claim the rig business was generally better than widely perceived and specifically that the National Drilling Company of Abu Dhabi would exercise its various options to order further rigs.

“It is now likely that these options will lapse at the end of March, and that no new rig is likely to be ordered for many months if not years,” it said.

Also, Canaccord said efforts to secure orders in new market segments - notably Norwegian upstream projects - have not met with success meaning that backlog has shrunk materially, down to $740m at the end of 2015.

At 0922 GMT, Lamprell shares were down 3.1% to 87p.