GlobalSantaFe Corp. (GSF) Energy
Goldman Sachs
Note Stock rating: Neutral Coverage view: Neutral Price: US$65.69 May 4, 2007 United States
GlobalSantaFe Corp. (GSF): Bright outlook, but we prefer other names for deepwater exposure
What"s changed
GlobalSantaFe reported 1Q2007 EPS of $1.28 vs. our $1.18 estimate and consensus of $1.22. Our 2007 EPS estimate remains unchanged at $7.05. We are adjusting our 2008/2009E EPS estimates to $9.35/$11.30 from $9.42/$11.12. Our 12-month price target is unchanged at $69 (8.20X 2007E EV/DACF), suggesting 5% upside potential.
Implications
(1) Demand for floaters remains strong, with 4th generation rates in the high $400s, which is close to 5th generation levels. Libya is emerging as a new source of demand in the 1,500? to 5,500? water depth range, with demand likely to be met with supply from the North Sea. (2) International jackup demand remains strong, with some caution surrounding the Southeast Asia market as newbuild deliveries approach. However, this could provide attractive acquisition opportunities, in our view. (3) The US GoM may see an uptick in demand; however, dayrates remain challenged. (4) 1Q2007 cost control has been solid across the board for the offshore drillers so far. GlobalSantaFe indicated that wage inflation is currently trending below initial expectations (3%-4% vs. 7.5%). (5)
Delays related to GSF jackups starting up in the Middle East offset part of the 1Q2007 beat.
Valuation
On 2007/2008E EV/DACF, GlobalSantaFe trades at 7.8X/6.0X, 13.9%/4.7% discounts to the peer group. On 2007/2008E EV/EBITDA, Global trades at 7.0X/5.4X, -6.4%/+3.9% relative to the peer group. Relative to closest peer Noble, GlobalSantaFe is trading at 3.1% discount on 2007E EV/DACF and at 5.6% premium on EV/EBITDA.
Key risks
Risks to our price target include (1) capacity additions could result in a flattening or depression of dayrates, (2) cost inflation due to wage pressures and/or shipyard cost overruns, and (3) a severe correction in commodity prices. |
