Is SBM Offshore Still a Buy Despite Stagnant ROCE? A Deep Dive into Capital Efficiency and Shareholder Returns

SBM Offshore, a global leader in offshore energy solutions, has long been scrutinized for its capital efficiency metrics. With its Return on Capital Employed (ROCE) showing minimal growth over the past five years, investors are left questioning whether the company remains a compelling long-term investment. This analysis evaluates SBM Offshore's financial performance through the lenses of ROCE trends, shareholder returns, and market dynamics to determine if its capital allocation strategies justify continued investment.

ROCE Trends: A Mixed Picture of Capital Efficiency

SBM Offshore's ROCE has fluctuated between 7.6% and 8.6% from 2018 to 2023, with a 2023 figure of 8.2%. While this represents a slight improvement from 2021's 7.6%, the metric has remained largely stagnant compared to industry benchmarks. For context, the Energy Services sector has demonstrated an average annual earnings growth of 48.1% during the same period, far outpacing SBM Offshore's 2.5% growth. This gap highlights the company's struggle to match sector-wide capital efficiency, particularly as peers leverage technological advancements and cost optimization to boost returns.

However, SBM Offshore's capital employed of $14.8 billion in 2023, coupled with a directional EBITDA of $1.3 billion, underscores its ability to generate consistent operational cash flows. While ROCE remains subpar, the company's high leverage (net debt of $8.7 billion) suggests a strategic reliance on debt financing to fund operations and growth projects. This approach, while risky in volatile markets, has allowed SBM Offshore to maintain liquidity and invest in long-term contracts, such as its Turnkey segment, which contributed significantly to 2023's revenue surge.

Shareholder Returns: A Strategic Shift Toward Value Distribution

Despite stagnant ROCE, SBM Offshore has prioritized shareholder returns through dividends and share repurchases. In 2023, the company distributed $220 million in cash returns, including a $150 million dividend and a $65 million share repurchase program. This marked a 12% increase from prior years and was further amplified in 2024, when the repurchase program was doubled to $130 million, fully executed by April 2025.

The company's dividend policy has also shown resilience. From 2018 to 2025, dividends per share rose from $0.20 to $0.85, with a payout ratio of 43.5% ensuring financial sustainability. These actions reflect a deliberate shift toward returning capital to shareholders, particularly as ROCE growth remains elusive. Notably, SBM Offshore's three-year total shareholder return (TSR) reached 90%, outperforming many peers in the offshore energy sector. This strong performance, driven by both share price appreciation and dividends, suggests that the company's capital allocation strategy is resonating with investors.

Market Performance and Industry Comparisons

The offshore energy sector has experienced extreme volatility from 2018 to 2023, shaped by the pandemic, geopolitical conflicts, and energy transition pressures. SBM Offshore's stock delivered a one-year TSR of 40% in 2023, a robust figure in a sector where oil and gas companies rebounded sharply in 2022 due to high energy prices according to BCG analysis. However, the company's ROCE of 7.71% in 2025 lags behind industry averages, raising concerns about its ability to compete with firms that have optimized capital structures.

Critically, SBM Offshore's performance must be contextualized within the broader energy transition. While traditional oil and gas firms face declining valuations, the company's focus on FPSO (floating production storage and offloading) units and long-term contracts positions it to benefit from sustained offshore demand. For instance, the 2023 sale of FPSO Liza Unity contributed to a 38% revenue increase, demonstrating the potential for high-margin projects to offset ROCE stagnation.

Is SBM Offshore Still a Buy?

The case for SBM Offshore hinges on its ability to balance stagnant ROCE with strategic capital returns. While its ROCE remains below industry benchmarks, the company's aggressive share repurchases and dividend growth have created value for shareholders. Additionally, its strong operational cash flows and long-term contracts provide a buffer against sector volatility.

However, risks persist. High leverage and exposure to cyclical energy markets could amplify losses during downturns. Moreover, the energy transition may pressure offshore demand in the long term, necessitating innovation in capital allocation. For now, SBM Offshore's shareholder-friendly policies and resilient cash flows justify a cautious "buy" rating, particularly for investors prioritizing income over capital appreciation. That said, the company must address ROCE stagnation through cost optimization or higher-margin projects to sustain long-term growth.