CGG Veritas - 1st Take: Trading Update a Modest Negative
We see CGG's trading update as a modest negative. The company highlighted that it 'intends to commence discussions'
with its stakeholders to restructure, but we would have expected these talks to have begun already after the
comments in November.
Restructuring discussions about to commence: CGG said that it intends to start discussions with all of its stakeholders to restructure. The company said in November that it would address its capital structure in January 2017, thus we
would have expected discussions to have started already. See our 4Q results note Further Changes to Capital Structure Signaled. Stay UW for more details.
Net debt in line and covenant waiver: End-2016 net debt of $2.3bn is broadly in line with consensus at $2.2bn for year end and is in line with guidance of net debt <$2.4bn. CGG has been given a covenant waiver relating to its leverage ratio and coverage ratio.
Multi-client sales light: Muti-client sales of $135m are below MSe of $153m for 4Q, due to lower late sales. Pre-funding in 4Q was in line with guidance of >80% for the full year.
Stay Underweight: We stay Underweight CGG, and would highlight that it is highly financially geared, with equity making up only 12% of the enterprise value. Thus, there is a large range of future outcomes for the stock price.