TechnipFMC.: Delivering In Subsea Energy Technology And Backlog Conversion (NYSE:FTI)

imaginima/iStock via Getty Images Global energy technology company TechnipFMC plc (NYSE:FTI) announced its Q2 2024 earnings, revealing a 17.92% (YoY) growth in revenue. The company’s earnings reached a historic quarterly high of $2.33 billion, boosted by a $356.3 million increase in drilling and oil exploration service revenue. As of this writing, FTI has gained 54.75% (YoY) and is trading just 0.75% shy of its 52-week high of $29.24. In this article, I will explain why TechnipFMC is a buy owing to an increase in its operational capacities including subsea and surface activities yearly. I believe the expected increase in orders will pay off with increased contractual obligations and demand heading into 2025. Q2 2024 overview TechnipFMC’s subsea inbound in Q2 2024 declined 31.71% (YoY) to $2.8 million from $4.1 million in Q2 2023. However, the company’s total backlog rose to its historic high of $13.9 million, an increase of 4.51% (YoY) in the quarter. It had reached $13.3 million in Q2 2023 showing a successive growth since 2022, rising 46.9% (YoY) at the time. TechnipFMC Q2 2023 This growth in the backlog gives an important visibility of the company’s revenues that will ultimately support its margin improvement. Even more interesting is that the subsea sector since 2023 has been FTI’s highest earner as compared to surface technologies. The former accounted for more than 86% of the company’s total revenue in Q2 2024 at $2.0 billion and has been consistent since its formation in 2017. In effect, the scheduling of the company’s backlog is expected to help the company achieve subsea revenue guidance ranging from “$7.6 billion to $7.8 billion and an adjusted EBITDA of 16.5% to 17%.” Novel Project awards We have to consider the impact of FTI’s subsea 2.0, the configure-to-order [CTO] pre-engineered model that is driving its geographical and economic advancement. The company announced back in April 2024 that it had been awarded a contract by ExxonMobil in Guyana valued between $500 million to $1 billion. At the time, Jonathan Landes, TechnipFMC’s subsea president, stated: ExxonMobil Guyana will utilize our Subsea 2.0® systems and manifolds, which help provide schedule certainty. We have already delivered more than 100 subsea trees for ExxonMobil Guyana – the location of one of the world’s fastest developing basins – and we look forward to deepening our relationship with them through Whiptail.” Further, Guyana’s offshore reservoir known as Stabroek is a vast block of almost 7 million acres that has seen the execution of at least 6 projects in the past 7 years – with Whiptail being the sixth. FTI has seen a rapid increase in sales with its integrated innovative technology- the iEPCI- of which the subsea 2.0 is a part. In the 6 months ending on June 30, 2024, FTI’s revenue in the subsea sector grew by $737.9 million driven by sales in the US, Angola, Guyana, Brazil, and the UK. In Australia, FTI recently announced a $75 million to $250 million deal from Woodside Energy for engineering works in its Xena Infill Well expected for completion before H2 2024. TechnipFMC’s innovative integrated technologies have helped the company to gain a competitive advantage against its peers not just in engineering but in the whole subsea production business. Industry leader, Baker Hughes (BKR) in Q2 2024 recorded a 12.37% (QoQ) growth in its subsea and surface pressure systems (SSPSs) revenue at $845 million. Baker Hughes Q2 2024 Sec Filing BKR’s revenue in the oilfields segment grew just 3% (YoY) or $134 million to $4.011 billion, with the increase largely driven by the SSPSs. However, I am invested in BKR and I also find the dividends more attractive as compared to FTI. Over the past 5 years, BKR’s dividend has surged 7% to an annual forward yield of 2.18% while FTI has grown 1.35% (in the same period) and has a forward yield of 0.68%- with a free cash flow of $103 million. From my perspective, FTI is growing its subsea and surface technologies faster than BKR seeing they are its main business segments as compared to the latter. Financial Strength TechnipFMC has repaid about $1.973 billion of its debt since its spin-off in 2017. Its debt in FY 2017 stood at $3.855 billion which has been reduced to $1.88 billion as of June 30, 2024, indicating the company’s intention of growing its balance sheet. On a sequential basis, FTI has increased its cash balance by 1.76% (QoQ) and 5.85% (YoY) to $721 million. I believe the management is working in the right direction towards maximizing shareholder return. In 2022, FTI announced a share repurchase program valued at $400 million that was raised to $800 million (an addition of $400 million) as of June 30, 2024. With the company committing more than 60% of its free cash flow into shareholder distribution into 2025, I expect an increase in FTI’s dividend payout from the current annual rate of $0.20. Valuation FTI’s forward price-to-sales ratio stands at 1.42 against the industry average of 1.47. The difference of -2.78% shows that the company is slightly undervalued. Further, FTI’s current assets stand at $4.884 billion against current liabilities at $4.4532 billion, representing a current ratio of X1.1. This metric supports FTI’s stable financial standing despite having a positive net-debt status. Risk TechnipFMC is yet to grow its investment in green energy technology at scale. However, FTI unveiled the Deep Purple technology, which is expected to replace the unclean energy systems. In its Q2 2024 Sec filings, FTI indicated that it was making progress in developing green technology, especially “hydrogen solutions and other greenhouse gas removal offshore floating renewables” but gave no timelines for the results. Part of my conviction is that renewable energy is fast overriding the energy business, and companies will need to transition to cleaner systems to grow their revenues. Bottom Line I have given a buy rating to TechnipFMC based on my expectation that its subsea and surface technologies will continue to grow into 2025 while being supported by its surging backlog. I also expect the company’s management to maintain a judicious financial policy that will see growth in shareholder returns as well as continual debt reduction.

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