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Aban Offshore----------------------------------------------------------------- Maintain OUTPERFORM
A declining quarter - earnings upside may now be a 1HFY12 affair
● Aban reported 3Q11 EPS of Rs14, down 18% QoQ. Revenues of
Rs7.7 bn were below estimates; likely on slower deployment of
new contracts. 9M delivered EPS is now Rs(1.5). Costs at the
Deep Venture JV increased QoQ, but total expenses fell QoQ.
Lower depreciation and higher other income helped.
● We understand from the company that Aban IV has been dehired,
while the Aban II, Aban VII, DD1 and DD8 started their new
contracts Dec, Dec, Oct and Sept 2010, respectively.
● Revenues for the Aban Abraham have been delayed and are now
expected by March 2011. The Deep Venture, Aban’s other drill
ship (50% interest) is idle, but management expressed hope that
some progress should be made soon – on litigation and on finding
a new contract. Three of Aban’s older jackups are likely to end
contracts soon. Finding new contracts can be a challenge.
● We update our model for 9M actual delivered. FY11/FY12 EPS
fall 88/21%. Our TP, at 7x FY12E falls from Rs1031 to Rs811.
Cash flow has improved. Gradual debt reduction should lead to
equity upside. We maintain our OUTPERFORM rating.
Aban 3Q EPS falls18% QoQ
Aban reported 3QFY11 EPS of Rs14.3, behind our estimates and
18%/31% down QoQ/YoY. The disappointment was led by a revenue
miss, as rigs deployed later than expected. Lower costs, depreciation
and higher other income helped. Costs at Deep Venture JV increased
c.US$6mn QoQ – Aban has a 50% interest in the currently idle rig.
We understand from the company that the contract for the Aban II
started in December, while the Aban IV was de-hired by the end of Q3.
The Aban VII, DD I and the DD8 started their respective new contracts
in Dec., Oct, and Sept 2010. Apart from Aban Abraham and the Deep
Venture, other rigs continued to operate through the quarter.
Revenues from Abraham and Deep Venture should provide
leverage
Aban’s two drill ships – the Aban Abraham and the Deep Venture did
not earn any revenue during the quarter. The Abraham has a longterm
contract in Brazil at US$270,000 per day and, we understand, is
currently being tested by the operator – Petrobras. Contract revenues
seem to have been delayed, and are now expected to begin by March
2011. The Deep Venture – a 4,200’ drill ship – is on long-term lease to
Aban and its JV partner. This lease agreement is currently under
litigation; which may need to be resolved before the rig is leased again.
Given the mid-water market is not as tight anymore, we reduce our
rate expectation for the Deep Venture to $250,000/day beginning
June 2011. Revenues from these large assets are expected to provide
Aban with revenue upside which, given the leverage in the PnL,
should lead to a higher EPS run rate.
Re-deployment of older jackups remains a question
The Aban IV is currently idle; contracts for the Aban III and V end
soon. The Aban II is on a short-term contract with Cairn. These old
rigs were operating at high rates with ONGC. If they do find new
contracts, day rates should be materially lower – the loss of revenues
at these four rigs could potentially compensate for all the upside from
a drill ship. Demand for the higher end jackups has recovered, but
most of Aban’s newer jackups are locked till mid-end CY2012.
Update model
We update our model for 9MFY11 numbers, and incorporate the large
write-off taken upon the sinking of the Aban Pearl. FY11 delivered
EPS is likely to be Rs12. FY12/13E EPS fall to Rs116/108. Our target
price, at 7x FY12E EPS, falls to Rs811.
Aban has large repayments due in FY2012. With EBITDA sufficient to
cover interest, we do not see Indian banks pulling out. Debt reduction
is a long haul for Aban, but this should happen, and lead to gradual
equity upside. We maintain our OUTPERFORM rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aban Offshore----------------------------------------------------------------- Maintain OUTPERFORM
A declining quarter - earnings upside may now be a 1HFY12 affair
● Aban reported 3Q11 EPS of Rs14, down 18% QoQ. Revenues of
Rs7.7 bn were below estimates; likely on slower deployment of
new contracts. 9M delivered EPS is now Rs(1.5). Costs at the
Deep Venture JV increased QoQ, but total expenses fell QoQ.
Lower depreciation and higher other income helped.
● We understand from the company that Aban IV has been dehired,
while the Aban II, Aban VII, DD1 and DD8 started their new
contracts Dec, Dec, Oct and Sept 2010, respectively.
● Revenues for the Aban Abraham have been delayed and are now
expected by March 2011. The Deep Venture, Aban’s other drill
ship (50% interest) is idle, but management expressed hope that
some progress should be made soon – on litigation and on finding
a new contract. Three of Aban’s older jackups are likely to end
contracts soon. Finding new contracts can be a challenge.
● We update our model for 9M actual delivered. FY11/FY12 EPS
fall 88/21%. Our TP, at 7x FY12E falls from Rs1031 to Rs811.
Cash flow has improved. Gradual debt reduction should lead to
equity upside. We maintain our OUTPERFORM rating.
Aban 3Q EPS falls18% QoQ
Aban reported 3QFY11 EPS of Rs14.3, behind our estimates and
18%/31% down QoQ/YoY. The disappointment was led by a revenue
miss, as rigs deployed later than expected. Lower costs, depreciation
and higher other income helped. Costs at Deep Venture JV increased
c.US$6mn QoQ – Aban has a 50% interest in the currently idle rig.
We understand from the company that the contract for the Aban II
started in December, while the Aban IV was de-hired by the end of Q3.
The Aban VII, DD I and the DD8 started their respective new contracts
in Dec., Oct, and Sept 2010. Apart from Aban Abraham and the Deep
Venture, other rigs continued to operate through the quarter.
Revenues from Abraham and Deep Venture should provide
leverage
Aban’s two drill ships – the Aban Abraham and the Deep Venture did
not earn any revenue during the quarter. The Abraham has a longterm
contract in Brazil at US$270,000 per day and, we understand, is
currently being tested by the operator – Petrobras. Contract revenues
seem to have been delayed, and are now expected to begin by March
2011. The Deep Venture – a 4,200’ drill ship – is on long-term lease to
Aban and its JV partner. This lease agreement is currently under
litigation; which may need to be resolved before the rig is leased again.
Given the mid-water market is not as tight anymore, we reduce our
rate expectation for the Deep Venture to $250,000/day beginning
June 2011. Revenues from these large assets are expected to provide
Aban with revenue upside which, given the leverage in the PnL,
should lead to a higher EPS run rate.
Re-deployment of older jackups remains a question
The Aban IV is currently idle; contracts for the Aban III and V end
soon. The Aban II is on a short-term contract with Cairn. These old
rigs were operating at high rates with ONGC. If they do find new
contracts, day rates should be materially lower – the loss of revenues
at these four rigs could potentially compensate for all the upside from
a drill ship. Demand for the higher end jackups has recovered, but
most of Aban’s newer jackups are locked till mid-end CY2012.
Update model
We update our model for 9MFY11 numbers, and incorporate the large
write-off taken upon the sinking of the Aban Pearl. FY11 delivered
EPS is likely to be Rs12. FY12/13E EPS fall to Rs116/108. Our target
price, at 7x FY12E EPS, falls to Rs811.
Aban has large repayments due in FY2012. With EBITDA sufficient to
cover interest, we do not see Indian banks pulling out. Debt reduction
is a long haul for Aban, but this should happen, and lead to gradual
equity upside. We maintain our OUTPERFORM rating.
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