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Aban Offshore
Nothing ‘Venture’-d, nothing gained…yet
Event
Aban Offshore (ABAN) announced Q3FY11 consolidated EBITDA of Rs5.2bn,
in line with expectations, but deep losses in its JV dragged down its profit to
Rs620m. We expect rig rates to firm up given highest-ever rig count in the
Asia-Pacific region and India currently deploying the highest number of rigs
ex-US/ Canada. We cut our target price to Rs800 (from Rs922) on the back of
rising interest rates, but maintain OP as the stock has fallen 15% in the past
week, and has the most compelling valuation among global peers.
Impact
Deep Venture uncontracted, Aban Abraham contract delayed to April:
Both ABAN’s high-earning drillships (which typically earn dayrates of US$350-
450) are currently idle. While Aban Abraham has visibility of earnings through
a US$270k/day, 5-year contract that was delayed by 3 months to Apr-2011,
Deep Venture has no contracts lined up. Further, Aban IV is also
uncontracted; and Aban III, V, and VII come up for renewal in Q1FY12.
Top line of Rs7.8bn (down 6% QoQ, 8% YoY); FY12 to see a boost: ABAN
revenues had a mild decline, primarily attributable to rupee depreciation (4%).
PBIT margins were stable at 51%, but expanded 5% YoY. Revenues from
Aban Abraham (from Q1FY12) and Deep Venture (which is warm-stacked
and ready to be deployed) could more than offset a decline from lowered
rates for jackups. Floater utilizations are still more than 91%, indicating firm
rates for deepwater drilling, going forward.
Increased loss from JV hurts bottom line: A loss of Rs433m due to the share
in JV earnings (50% owned by ABAN, which controls Deep Venture) stemming
from costs associated with keeping the rig warm-stacked has hurt earnings.
Write-offs on Norwegian company (Rs134m for Q3FY11) tapering off:
The write-offs on account of bankruptcy of Petrojack ASA (a Norwegian
company, in which ABAN has invested through its subsidiary Sinvest) have
tapered down to Rs134m. ABAN has been writing off similar amounts each
quarter since Q1FY11 (after a large write-off of Rs1.2bn in Q4FY10).
Earnings and target price revision
We are cutting FY11E-12E adjusted PAT by 15-17%, and FY13E by 8% due
to continuing costs for the warm-stacked high-value drillship Deep Venture in
the absence of a contract, and expectations of lowered renewal rates for 3
jackups (hired at peak at US$156k/day). TP cut to Rs800/sh from Rs922/sh.
Price catalyst
12-month price target: Rs800.00 based on a DCF methodology.
Catalyst: Contract for drillship Deep Venture (owned 50% by ABAN)
Action and recommendation
ABAN is trading at an adjusted FY12E PER of only 5.6x, vs peer mean of 11x.
We view ABAN as a high-risk/high-return opportunity that presents significant
value against a backdrop of strong crude prices and cheap valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aban Offshore
Nothing ‘Venture’-d, nothing gained…yet
Event
Aban Offshore (ABAN) announced Q3FY11 consolidated EBITDA of Rs5.2bn,
in line with expectations, but deep losses in its JV dragged down its profit to
Rs620m. We expect rig rates to firm up given highest-ever rig count in the
Asia-Pacific region and India currently deploying the highest number of rigs
ex-US/ Canada. We cut our target price to Rs800 (from Rs922) on the back of
rising interest rates, but maintain OP as the stock has fallen 15% in the past
week, and has the most compelling valuation among global peers.
Impact
Deep Venture uncontracted, Aban Abraham contract delayed to April:
Both ABAN’s high-earning drillships (which typically earn dayrates of US$350-
450) are currently idle. While Aban Abraham has visibility of earnings through
a US$270k/day, 5-year contract that was delayed by 3 months to Apr-2011,
Deep Venture has no contracts lined up. Further, Aban IV is also
uncontracted; and Aban III, V, and VII come up for renewal in Q1FY12.
Top line of Rs7.8bn (down 6% QoQ, 8% YoY); FY12 to see a boost: ABAN
revenues had a mild decline, primarily attributable to rupee depreciation (4%).
PBIT margins were stable at 51%, but expanded 5% YoY. Revenues from
Aban Abraham (from Q1FY12) and Deep Venture (which is warm-stacked
and ready to be deployed) could more than offset a decline from lowered
rates for jackups. Floater utilizations are still more than 91%, indicating firm
rates for deepwater drilling, going forward.
Increased loss from JV hurts bottom line: A loss of Rs433m due to the share
in JV earnings (50% owned by ABAN, which controls Deep Venture) stemming
from costs associated with keeping the rig warm-stacked has hurt earnings.
Write-offs on Norwegian company (Rs134m for Q3FY11) tapering off:
The write-offs on account of bankruptcy of Petrojack ASA (a Norwegian
company, in which ABAN has invested through its subsidiary Sinvest) have
tapered down to Rs134m. ABAN has been writing off similar amounts each
quarter since Q1FY11 (after a large write-off of Rs1.2bn in Q4FY10).
Earnings and target price revision
We are cutting FY11E-12E adjusted PAT by 15-17%, and FY13E by 8% due
to continuing costs for the warm-stacked high-value drillship Deep Venture in
the absence of a contract, and expectations of lowered renewal rates for 3
jackups (hired at peak at US$156k/day). TP cut to Rs800/sh from Rs922/sh.
Price catalyst
12-month price target: Rs800.00 based on a DCF methodology.
Catalyst: Contract for drillship Deep Venture (owned 50% by ABAN)
Action and recommendation
ABAN is trading at an adjusted FY12E PER of only 5.6x, vs peer mean of 11x.
We view ABAN as a high-risk/high-return opportunity that presents significant
value against a backdrop of strong crude prices and cheap valuations.
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