Expect to see a recovery in Technip's earnings in 2015.

(CercleFinance.com) - Down 18% year-on-year, the Stoxx Europe 600 Oil & Gas sector index has fallen a further 3% since the start of the year, underperforming the general Stoxx 600 by respectively 20% and 0.
8%. The Norwegian specialist of drilling platforms, Seadrill, has a very low valuation, although no recovery is expected in its earnings, which is not the case for the French player Technip.

The collapse of the price of crude oil, which, over in one year, has fallen by over 50%, will weigh on the cash flows of the oil companies, and particularly expenditure on exploration and production at their service providers - oil services companies.

Unsurprisingly, the consensus for earnings is uninviting: out of the 28 stocks in the Stoxx Europe 600 Oil & Gas index, half are expected to report lower earnings in both 2014 and 2015. The recovery is not expected before 2016, when only three falls are expected at present.

In these depressed market conditions, what stocks might stand out in 2015? The Swedish Junior, Lundin Petroleum, should see its token profit of 2014 multiplied by 20 times in 2015, before tripling from this level in 2016. However, Lundin's 2015 P/E, at close to 40x (a record for the index), already seems to partly reflect this prospect.

Amongst the majors, Statoil, BG Group and Shell are expected to see their profits fall by around 20% this year, while those of Total are expected to drop 13% and Eni's by 9%. In all cases, double-digit rebounds are expected in 2016.

Amongst oil services companies, Saipem's profits are expected to rise by 58% this year, reaching one euro per share, meaning a P/E of slightly above the median of 8.5x. However, beware: Eni has not abandoned selling its stake of around 40% in Saipem, and cutbacks in oil investments are not yet over.

Furthermore, this is why no rebound in earnings is expected to be reported by the Norwegian player Seadrill, the worst performer in the Stoxx Europe 600 Oil & Gas index, which has lost two thirds of its value in one year. Trading at a 2014 P/E of just over 4, it also has the lowest valuation in the index.

However, at the French group Technip, after a slight decline in 2014 (around -5%), a 31% rebound is expected in earnings in 2015, which explains a P/E that remains moderate at 8.3x.

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