Bob Robotti of Robotti & Company Advisors presented his investment thesis on Subsea 7 (Norway: SUBC, US: SUBCY) at Best Ideas 2026.
Thesis Summary
Subsea 7 has evolved from a traditional offshore oil and gas service provider into a diversified engineering and installation leader encompassing offshore wind, carbon capture, and hydrogen applications. Bob highlights that the company is currently undergoing a transformational merger with Saipem, creating the industry’s largest fleet and a combined entity with approximately €21 billion in revenue, a scale comparable to Halliburton. This consolidation follows a decade of industry attrition where Subsea 7 opportunistically acquired distressed competitors and assets—such as a $1 billion portfolio purchased for $800 million—strengthening its position at a fraction of replacement cost.
The industry is characterized by formidable barriers to entry, illustrated by the failure of well-capitalized entrants like Ceona, which possessed modern vessels but lacked the critical engineering track record required by major oil companies to sanction multibillion-dollar projects. Consequently, the market is now dominated by a few key players, primarily TechnipFMC and the Subsea 7/Saipem combination. The “Subsea Alliance” with Schlumberger further entrenches Subsea 7’s position by offering integrated FEED studies and execution, effectively disintermediating third-party engineering firms. This integration improves project economics for operators, making offshore developments viable at lower commodity prices while securing a sticky customer base that often awards contracts without competitive bidding.
The merger with Saipem is driven by industrial logic rather than financial engineering alone. While the companies have guided for €350 million in cost synergies, Bob argues the revenue synergies from fleet optimization are the primary value driver. The combined entity can deploy specific vessel types—such as J-lay or S-lay assets—more efficiently across global projects, minimizing non-revenue-generating transit times and maximizing utilization. With Saipem reporting its enabling assets fully booked for the next two years, this supply-demand tightness provides pricing power that is not yet fully reflected in reported earnings, which are currently weighed down by lower-margin legacy contracts awarded during leaner periods.
Growth is further supported by an expanding addressable market that now includes substantial gas developments driven by global LNG demand and energy security mandates in regions like the Mediterranean and Mozambique. Additionally, “tie-back” projects allow operators to connect new fields to existing infrastructure economically, generating volume for installation contractors with limited capital outlay for the client. Bob notes that Kristian Siem, a key shareholder and architect of the merger, provides the disciplined owner-operator mindset crucial for capital allocation in this cyclical industry. The combined business is poised to benefit from a growing pipeline of large-scale projects and a resurgence in geographies like Brazil, West Africa, and Mexico.
Regarding valuation, Subsea 7 recently traded at approximately 10x standalone earnings, a level Bob considers modest given the improved earnings power and the marked disparity with US-listed peer TechnipFMC, which commands a substantially higher multiple. The thesis posits that as the backlog churns into higher-priced contracts and merger synergies materialize, EBITDA margins—already approaching 20%—will expand further, driving robust FCF generation. Additionally, shareholders are expected to receive approximately $1 billion in distributions prior to the merger closing in late 2026. Bob views the current valuation as paying a mid-to-low multiple on future earnings power, offering a margin of safety for a market leader in a recovering sector.
Disclaimer
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Slides
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