Oilfield Equipment and Services Winners in 2018

We just released our Oilfield Equipment and Services Winners' Analysis in 2018. The Oilfield Equipment and Services (OFES) industry's 2018 financial performance was mixed. While revenue and invested capital growth both slowed down relative to 2017, the industry was disciplined in reducing costs. This led to improved profitability, productivity and low-er debt levels. However, all key financial performance indicators were still significantly worse than cycle aver-ages for the 2008-2014 period and shareholder returns significantly lagged the S&P 500 for the 12th year in a row. A few takeaways:

 > Revenue grew by 8%, but invested capital shrank by 5%

> EBIT continued to improve, from 6% in 2017 to 7% in 2018, but remained well below cycle average of 14%

> Productivity increased through lower working capi-tal relative to revenues at 19% (2 percentage points lower than 2017) and higher overall asset turnover (0.5 compared to 0.4 in 2017)

> Returns remained significantly below cost of capital at -13%, and though there was a 4-percentage point increase over 2017, only 16% of companies generat-ed positive returns

> Reduced risk due to lower debt translated to lower cost of capital; however, debt levels remained significantly higher than historical levels (Debt to EBITDA ratio was 4.4 in 2018 compared to a cycle average of 2.5)

Investor fatigue set in after another difficult year, with extreme oilfield stock-selling behavior, associated with the oil-price collapse in Q4 2018. This resulted in anoth-er year of negative TSR returns of -26%. In this environment, two groups of companies were successful:

> Financial engineers benefitting from the efficiency of capital markets to lower their asset cost base

> Light footprint companies which built truly "future-proof" business models by applying light footprint principles

 While few and far between, light footprint companies pursued strategies that provide food for thought on how to thrive in the challenging current environment.

For additional details, please read our full study here.