London-based Acergy S.A. (ACGY) is a leading oilfield contractor engaged in the designing, procurement, building, installation and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry.

In recent times, the company has been successfully pursing a strategic shift towards the relatively high-margin deepwater markets (engineering and construction) that have withstood the commodity price and credit market turmoil. Deepwater drilling and the subsequent construction activities are expected to get a further boost from the arrival of a large number of newbuild rigs in the next few years.

Acergy is one of only four global companies capable of providing a wide range of offshore services on a worldwide basis. As such, it remains well positioned to capitalize on the positive outlook for subsea engineering and construction services demand over the coming years.

To date, Acergy has remained relatively unscathed from the economic downturn, as more than 90% of the company’s work contracts are with well capitalized oil majors like ExxonMobil Corp. (XOM), BP Plc (BP) or state-owned energy companies like Petrobras (PBR). While the occasional delay cannot be ruled out, we believe that most of the projects sponsored will remain unaffected.

Buoyed by these factors, the company recently posted better-than-expected second quarter 2009 results.

Further, Acergy’s strong backlog, which now stands at $2.4 billion, offers long-term earnings and cash flow visibility. This enables the company to navigate the current downturn better than many of its peers.

Acergy also remains in excellent financial health with approximately $696 million in cash and a total debt-to-capitalization ratio of 30.8%. This provides adequate financial flexibility to increase its capacity through newbuild programs or through strategic acquisitions. Additionally, the company does not have any near-term refinancing requirements.

As such, we view Acergy ADRs as an attractive investment and rate it as Outperform. Our $13 price objective represents 2009 P/E multiple of 14.4X, still at a discount to the industry average.
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