Category Archives: rig

ESV acquires ATW to create an undervalued rig behemoth

In line with our expectations expressed in our initiation of Ensco (BUY, TP 17), the company takes on the role as consolidator in the current trough. Today, ESV announced the acquisition of Atwood Oceanics (BUY, TP 19) in an all-share deal that values ATW at a 33% premium to last close and leaves ATW shareholders with around 31% of the NewCo. Although we believe the offer to be a bit fresh at an EV/EBITDA ‘17E of 8.3x (vs peers at 7.0x), P/NAV of 1.18 and EV/GAV of 1.05, we see a good fit between the fleets and organizational synergies. Overall, we believe the offer is most beneficial for Atwood’s shareholders, but also expect valuation release for Ensco shareholders as the USD 10.72/sh acquisition price is far below our USD 19/sh pre-deal target price for Atwood. We estimate a pro-forma fair value USD 14.2/sh and reiterate our BUY recommendation.

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NE-US: Initiation (BUY, TP 12)

We initiate coverage of Noble Corporation with a BUY recommendation and target price of USD 12

The company has a large fleet of attractive assets, a balanced contract backlog and a decent liquidity position. We believe the company is well positioned to take advantage of the looming expansionary phase of the cycle.

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RDC-US: Initiation (BUY, TP 20)

We initiate coverage of Rowan Companies with a BUY recommendation and target price of USD 20

The company has a fleet of four UDWs and 25 jackups of which only two are currently stacked. The company's earnings visibility is strong based on the current contract backlog, further supported by the recently announced JV with Saudi Aramco. Add to this a coffer of USD 1.3bn and improving earnings ahead, we deem the company a defensive investment at the trough, but with the a free option on a cyclical recovery.

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ATW-US: Initiation (BUY, TP 19)

We initiate coverage of Atwood Oceanics with a BUY recommendation and target price of USD 19

The company has four modern UDWs/Drillships and five modern Jackups on the water, in addition to an aging Deepwater rig and two UDW newbuildings stacked at DSME until 2019/20 but deliverable at Atwood's option.

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ESV-US: Initiation (BUY, TP 17)

We initiate coverage of Ensco with a BUY recommendation and target price of USD 17

The company has 59 rigs on the water in addition to two deferred newbuildings, a market cap of USD 2.5bn and is on of the most liquid names in the industry. Despite this, we estimate the company is trading at a discount to NAV and an implied 3% discount per rig at current trough levels.

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NODL-NS: Initiation (BUY, TP 90)

We initiate coverage of Northern Drilling with a BUY recommendation and target price of NOK 90

All the time Seadrill remains in disarray, Northern Drilling has emerged as the new investment vehicle for Fredriksen ahead of the next cyclical upturn in the rig space. The company currently has two more or less complete semi-sub newbuildings warehoused at HHI, and the main assumption is for delivery in Jan/19.

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BORR-NS: Update (BUY, TP 60[54])

Borr Drilling today announced the LOI to purchase Transocean’s 15 jackups in addition to a USD 800m equity offering. The accretive nature of these corporate events leads us to raise our target price to NOK 60 (from 54).

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SONG-NO: Initiation (BUY, TP 47)

We initiate coverage of Songa Offshore with a BUY recommendation and target price of NOK 47

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BORR-NS: Initiation (BUY, TP 54)

We initiate coverage of Borr Drilling with a BUY recommendation and target price of NOK 54

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