In a Feb. 19 research note, Raymond James analyst J. Marshall Adkins reported that Helix Energy Solutions Group Inc. (HLX:NYSE) should see increased well intervention revenue in 2019 and increased free cash flow in 2020, on the heels of a solid Q4/18. "We remain confident in Helix's ability to deliver further improvement in 2019 and very strong 2020 free cash flows."
Helix ended 2018 with a solid performance that exceeded its own guidance. Q4/18 EBITDA was $23.3 million, well above Raymond James' estimate of $17.6 million and the Street's forecast of $18.7 million. "During the seasonally weak winter months, Helix successfully focused on reducing costs, maximizing equipment utilization and setting it up for strong free cash flow generation in 2020," Adkins commented.
Throughout this year, 2019, utilization of Helix's vessels in the Gulf of Mexico is expected to rise, Adkins indicated. As such, Raymond James projects 94% and 89% increases in utilization of the Q4000 and Q5000, respectively, which would boost overall well intervention revenue by $5 million. The Q4000 already is contracted through early Q2/19 and has additional prospects further out. Q5000 has 270 precontracted days with BP and the potential for more activity should oil prices stay near current levels.
The newly acquired Droshky assets should also help increase the utilization rate by "providing secured, non-conditional work," Adkins pointed out. "This acquisition increases backlog through fixed price plugging and abandoning of four wells, which Helix will use to fill the gaps in the calendar."
As for Helix's Q7000, it will likely be ready to start work in H2/19. This time estimate allows for a four- to six-month window, after approval to mobilize, in which the vessel will be readied and tested and personnel will be trained.
After Helix funds the estimated $112 million cost of the Q7000 and capex returns to typical levels, expected this year, it can begin to generate free cash flow, which is anticipated to for 2020. Raymond James projects a cash flow yield during 2020 of 14.5%.
Raymond James has an Outperform rating but no target price on Helix, which is trading at around $7.36 per share.[NLINSERT]
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Disclosures from Raymond James, Helix Energy Solutions Group Inc., Company Comment, February 19, 2018
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analysts J. Marshall Adkins and Praveen Narra, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analystís compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months..
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