Vallourec

Vallourec was awarded a significant contract by Petrobras, following a competitive bidding process, for the supply of OCTG products and services for offshore operations from FY26 to FY29. This contract could generate up to US$1 billion over the period, potentially increasing Vallourec's revenue by approximately 6-7% yearly over the next 4 years.

Key points:

- The contract is positive due to its substantial size.

- It involves Petrobras' offshore operations, which require more complex (in particular connections), higher value-added products/services with richer margins.

- Petrobras is a major historical client of Vallourec, likely the largest single customer. Despite the tender process, Vallourec was certainly well-positioned to secure the contract.

- This award is not seen as such a significant setback for Tenaris (which had this contract previously). Brazil has been and still is growing as a strong market for Vallourec (where it is also producing a lot), similar to what Argentina and Mexico are for Tenaris. Conversely, losing again this contract to Tenaris would have been concerning we would say.

The market reaction is expected to be positive. We plan to revise our revenue growth projections for the coming years after talking to management. Say our TP should go up by c.5%+...

This is good news. Vallourec's predicaments on its balance sheet are now clearly behind us. The stock caught up with Tenaris over the last year and now only trades with a slight discount to Tenaris (on which we also have a buy). Our expert still believes that Vallourec is an attractive equity story in the current environment with a nice fat 6.5% - 7% dividend yield.