French seismic firm CGG's shares hit by analysts' downgrades

PARIS, March 1 Fri Mar 1, 2013 8:42am EST

PARIS, March 1 (Reuters) - Shares in French oil industry seismic surveying firm CGG extended their decline on Friday for a second day as several analysts cut their forecasts and price targets after disappointing results from the recently expanded business.

The stock fell to as low as 17.5 euros on Friday, its lowest level since June and a 16 percent drop in the last two days after analysts said margins at seismic exploration equipment unit Sercel were under pressure. The stock has dropped by almost a third since its October highs.

On Thursday, CGG, which a month ago completed its $1.3 billion acquisition of Dutch engineer Fugro's Geoscience seismic data unit, forecast a 25 percent rise in revenue and an improved operating margin this year, having reported a 78 percent rise in operating income to $365 million for 2012 on sales up 7 percent at $3.4 billion.

The company also said its operating income for last year would be $329 million if it includes non-recurring items related to the Geoscience acquisition.

Analysts had on average expected operating income of $436 million on revenue of $3.6 billion for 2012 and revenue growth of more than 30 percent in 2013, according to Thomson Reuters I/B/E/S Estimates.

"CGG delivered disappointing fourth-quarter results and we expect negative revisions to consensus following 2013 guidance," Morgan Stanley analysts said in a note, cutting their price target to 23 euros from 27 euros.

"We see 2013 as a transition year," they said.

Following the Geoscience acquisition CGG also changed its brand name from CGGVeritas on Jan. 28, leading to a $30 million impairment charge on the goodwill valuation of the Veritas brand.

Growing competition and price pressure at Sercel also concerned analysts. Revenue at the unit rose 5 percent last year to $1.2 billion but was down 11 percent in the fourth quarter on the previous year at $288 million.

Sercel's operating margin, typically above 30 percent, slipped from 33 percent in the third quarter to 28 percent in the fourth, a level at which it was set to remain over 2013, Portzamparc analyst Nicolas Royot said in a note, cutting his share price target to 24 euros.

"Sercel's profitability will suffer from an unfavourable mix effect - more marine equipment and wireless products - and increased competition - Schlumberger and Chinese suppliers," Royot said.

HSBC lowered its target price on the stock again to 29 euros from 31 euros after cutting it from 35 euros in late January. HSBC maintained its "overweight" rating on the stock, however.

HSBC analysts said that while 2013 would be impacted by a weaker performance by Sercel "the seismic recovery remains intact", predicting a stronger second half and further acceleration into next year.

CGG shares were trading down 4.7 percent at 18.11 euros by 1339 GMT. ($1=0.7649 euros) (Editing by Greg Mahlich)

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