Saipem SpA (SPM) plunged a record 34 percent in Milan trading after Europe’s largest oil-service provider cut profit forecasts and an Italian regulator investigated a share sale made before yesterday’s statement.
The stock plummeted 10.44 euros to close at 20.01 euros at the close, valuing the Milan-based company at 8.8 billion euros ($12 billion). Saipem had its rating cut by at least 11 brokers after yesterday’s announcement that 2013 earnings before interest and tax would be less than half the amount expected.
“The order of magnitude of these revisions suggests to us that the company has executed poorly on projects during the process,” Nomura Holdings Inc. (8604) said today in a research note. “Moreover, we believe the former management’s decision to bid on projects at low prices could lead to further problems in delivery that may result in additional writedowns.”
Italy’s market regulator Consob said it was reviewing the sale of almost 10 million shares after the close of trading on Jan. 28. The stake was sold at 30.65 euros a share, people familiar with the transaction said, before Saipem announced profit would be lower than expected.
A spokesman for Fidelity Investments, Saipem’s second- largest shareholder according to data compiled by Bloomberg, said the company didn’t sell the stake. A spokesman for Eni SpA (ENI), Saipem’s largest shareholder with a 43 percent stake, declined to comment on the matter.
Other providers of engineering to oil producers dropped on concern Saipem’s announcement signaled lower profits across the industry. Technip SA (TEC), Europe’s second-largest, fell 7.1 percent, its biggest drop in more than a year. London-based Petrofac Ltd. (PFC) tumbled 7 percent.
Saipem said yesterday it expected a “very significant reduction” of about 80 percent in Ebit this year from its onshore business because most of the contracts to be carried out are less profitable than those that were completed in 2012, mainly in the Middle East, Nigeria and Algeria.
Bank of America Corp.’s Merrill Lynch unit offered 9.97 million shares, equivalent to 2.3 percent of the company, on behalf of an institutional client after the close of trading on Jan. 28. The price was 30.65 euros to 31.56 euros, according to terms obtained by Bloomberg News.
The shares were sold at the lower end of the range as a “clean-up” trade, according to the term sheet for the sale. A Merrill Lynch spokeswoman in London declined to comment on the transaction.
Delays to large contract awards in Venezuela, Nigeria and Iraq also contributed to the lower guidance, Saipem’s new Chief Executive Officer Umberto Vergine said on a conference call yesterday. In the offshore business, Saipem expects Ebit to fall by 70 percent in 2013, he said.
Vergine took over as CEO on Dec. 5 after Pietro Franco Tali resigned because of an Italian investigation into contracts in Algeria.
Eni, Italy’s largest oil company, fell 4.7 percent to close at 18.40 euros in Milan trading.
The impact on Eni’s 2013 earnings from Saipem’s outlook is about 200 million euros, Chief Financial Officer Massimo Mondazzi said today in a phone interview. The main upstream projects with Saipem will continue as planned, he said.
Saipem’s profit decline will be temporary and there will be a “significant” pickup in 2014, Mondazzi said.
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