Saipem: Continues To Digest Legacy Business

Saipem is experiencing improving margins, attributed to the reduction of its legacy, low-margin EPC backlog and a favorable shift in asset-based service project phases. However, a substantial portion of the low-margin backlog is expected to persist until 2026, and the company faces inherent demand risk. The analyst maintains a cautious outlook on structural oil market dynamics, anticipating OPEC+ production increases despite current Middle East conflicts.

Analysis

Saipem is undergoing a gradual margin improvement phase, primarily driven by the reduction of its legacy, low-margin Engineering, Procurement, and Construction (EPC) backlog. This positive trend is further supported by an expected uplift in asset-based services margins as existing projects mature into more profitable later stages. However, the recovery is tempered by the fact that a significant portion of this low-margin backlog is projected to remain on the books until 2026, suggesting a prolonged transition period. The company's outlook is set against a cautious view of the structural oil market, where the potential for OPEC+ nations to increase production is seen as a key factor that could cap energy prices, despite ongoing geopolitical tensions in the Middle East. Consequently, the core operational risk for Saipem remains the cyclical nature of its business, where a downturn in energy capital expenditures could cause demand to diminish.

Key Decisions for Investors

• Investors should view Saipem as a long-term recovery play, recognizing that the full benefits of margin expansion from its backlog transition will not be realized until after 2026.
• Closely monitor OPEC+ production decisions and forward-looking indicators for energy demand, as the analyst highlights these as key macro risks that could undermine the company's improving fundamental story.
• For execution, consider the analyst's warning regarding potential liquidity issues with the US-listed ADRs (SAPMF, SAPMY) and evaluate trading through the more liquid primary listing in Italy.