Prosafe

BUY, PRSO.OL: SP, NOK 142.40; TP, NOK 250.00



The golden days are about to return

Restructured and streamlined with upside optionality
Niche market to tighten significantly from ’24e
Earnings recovery drives leverage and valuation down
Well-positioned for upturn
Prosafe is the global leading accommodation rig provider with a fleet of seven rigs. It restructured its balance sheet in late ’21, reducing its NIBD from USD 1.2bn to ~USD 350m. Also, during the sector downturn it has trimmed its opex by 25-60% and reduced its fleet from 12 to 7 (with an additional two options at the yard). Its high-spec fleet and contract structure appears well balanced, with two units on long-term charters in Brazil giving visibility, available capacity in what appears to be the tightest market (Norway), and growth options through the cold stacked Safe Scandinavia and a possibility to take the newbuilds Nova & Vega should market terms support it.

Spike in demand in Norway and Brazil to push rates up
Market utilization has recovered from the sector downturn/Covid lows through some market recovery, but PRS is late-cyclical and still exposed to selective market timing effects, such as the one we expect in Norway in ‘23e, as the base line activity has yet to reach high levels. We expect a downtick in EBITDA from the USD 65m in ’22 in ‘23e, which will be a soft year for earnings and cash flow, but we see a very strong spike from ‘24e. This comes from a combination of Norwegian field development/upgrade/maintenance activity, Brazilian growth and general international offshore activity, including another important market for PRS, the UK. We therefore expect EBITDA to break ~USD 100m in ’24.

Low valuation as earnings normalise: BUY, TP of NOK 250
The earnings recovery in ’24e/’25e implies very low multiples and that leverage on the debt maturing at YE ’25 will be low (~1.3x). Therefore, we expect a refinancing to be manageable and see significant equity upside. We arrive at a SOTP (DCF/age-adj. replacement cost) of ~NOK 400/600 per share. We think the market will price PRS at some discount to this in the short term, as investors look for datapoints supporting our ’24+ scenario. We initiate coverage on PRS with a BUY rating and TP of NOK 250, implying 5.3x ’24e EBITDA and an EV of ~USD 80m/rig.