Noble: disappointing earnings report, but no tragedy
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Despite the government crisis, the Romanian stock market is near record highs
Romania has been under a caretaker government since early May, after the Social Democratic Party, together with an opposition party, successfully tabled a no-confidence motion, thereby bringing down the Romanian government. Subsequent attempts to form a government have been unsuccessful, and for now, it is unclear how the government crisis might be resolved. Despite the political uncertainty, the Romanian stock market has performed very well so far this year; the BET index is currently the fifth-best-performing stock index globally. With that in mind, we examined what might happen next in Romania.
Orsted may pay dividend again after several years
Orsted, the Danish renewable energy utility, recently published its Q2 earnings report, which showed mixed results. The company exceeded analysts’ expectations in terms of both revenue and EBITDA, but fell short of net income estimates. Nonetheless, project developments are on track, and the company’s liquidity position remains adequate. In light of the results, management maintains its 2026 guidance, and announced dividend payment plans for 2027. Overall, Orsted keeps making good progress, so we are keeping the stock on our Equity Top Pick List.
Noble, the offshore oil drilling company, published a disappointing Q2 earnings report. Although the company exceeded expectations in terms of revenue, its earnings fell significantly short of analysts’ forecasts. This can be mainly attributed to the fact that Petrobras has suspended operations at the company’s two deepwater drilling rigs. Consequently, operating cash flow has declined, and management has also revised its annual financial targets downward. However, this is not yet a tragic situation considering that the company has a high cash balance and strong liquidity, hence dividend payments are not at risk, and the market environment may improve next year. For now, we are keeping Noble’s shares on our Equity Top Pick List, but if market prospects deteriorate significantly in the coming months, we will remove the stock from the list.
Quarterly earnings
Noble released its Q2 earnings report on Monday after the market closed, and the results were basically weaker than expected. Although the company beat analysts’ expectations in terms of revenue (+4.4%), but the top line figure is still down by roughly 15% year-over-year. At the same time, earnings per share were minimal ($0.01), falling significantly short of analysts’ expectations and also much weaker on a year-over-year basis. The weaker performance is primarily due to the fact that Petrobras has suspended operations at the company’s two deepwater drilling rigs.
Accordingly, operating cash flow also declined in the second quarter, coming in at roughly $144 million, while capital expenditures totaled around $205 million. The company’s free cash flow was therefore negative in Q2 (–$59 million), although the balance remains in the green for the first half of the year (+$110 million). It should be noted, however, that this alone is no longer sufficient to fully cover dividend payments (approximately $80 million per quarter), which will remain at $0.50 per share in Q3 (representing an annualized dividend yield of ~4.9%). Nonetheless, there are no major problems yet, as Noble’s cash balance was still $456 million at the end of the second quarter, so in our view, the dividend payment is not at risk for the time being.
However, in light of the weaker earnings report management has lowered its full-year guidance. Revenue is now expected to range between $2.8-2.9 billion (instead of $2.8 billion to $3.0 billion), while EBITDA is projected to be in the range of $850 million to $925 million (instead of $940 million to $1,020 million), representing a 9.4% decline on a midpoint basis.
At the end of June, the company’s gross debt stood at $1.89 billion, while its net debt was $1.43 billion. This is not a high debt amount as calculating even with the reduced 2026 EBITDA forecast it corresponds to a net debt / EBITDA ratio of ~1.6x. Similarly, there are no liquidity issues, as the company has more than $640 million in available credit facilities in addition to $456 million in cash.
Fleet utilization declined slightly on an annual basis in the second quarter, standing at 65% (vs. 67% in Q2 of last year). Structurally, deepwater rig utilization declined more sharply (59% vs. 70%), while the shallow water (jackup) segment performed better (83% vs. 61%). Regarding the latter, we note that Noble sold five jackup drilling rigs to Borr Drilling in Q1, so the utilization rate was spread across fewer units. However, on a positive note the average daily rental rates have increased year-over-year in both segments. The backlog also remains high at $6.8 billion, and 65% of available drilling days for next year are already booked, and 51% of days for 2028 (compared to 61% and 44%, respectively, in the previous quarter).
Valuation
Noble’s valuation may seem high based on its expected 2026 EPS (36x P/E), but this is due to the weaker offshore oil drilling market environment this year. The consensus expects the market to improve starting next year, so based on the estimated 2027 EPS, the P/E ratio could fall to 15x and then to 11x in 2028. If we examine the valuation picture based on EV/EBITDA, it looks much better: based on the estimated EBITDA for 2026, the multiple is 8.6x, while for 2027 it is 6.6x.
Overall, following a strong Q1 report, the weak Q2 performance is quite disappointing, although one-off factors played a significant role here (the suspension of the two Brazilian drilling rigs). In our view, there is no cause for major concern yet, as the dividend payment is not at risk, liquidity is adequate, and the consensus expects the offshore oil drilling market to improve starting next year. For now, we are keeping the shares on our Equity Top Pick List, but if market prospects deteriorate significantly in the coming months, we will remove the stock from the list.
Equity Top Pick List (updated)
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