Atwood Oceanics (IL/A): Raising EPS and fair value to $111 - Goldman Sachs - January 31, 2006
We are raising our 2007E EPS for Atwood Oceanics to $11.55 from $10.00 based on higher dayrate and utilization assumptions, as well as a lower tax rate. Near term, ATW's exposure to spot dayrates is mitigated by 100%/80% contract coverage in 2006/07. However, we see potential for ATW to earn $16 EPS (=highest EPS growth in the group) in 2008, representing 6x EPS vs. a historical upcycle average of 10.2x on forward earnings. We are lowering our 2006E EPS to $4.82 from $5.30 based primarily on higher expenses. ATW remains one of our favorite small cap names, but, following recent outperformance, we see more near term upside in Todco (IL/A). We are raising our fair value to $111 (6.5x 2006E EBITDA) from $94, suggesting +10% upside. Maintain IL/A. Potential for speculative jackup newbuild or rig purchase remains on the horizon.
VALUATION. ATW trades at 6.1x our new 2007E EBITDA of $272mm, a 3% discount to the peer group. Historically, ATW has traded between 3.3x and 16.4x EV/EBITDA and at an upcycle average of 8.2x (9% peer group discount) during the 1995-1998 and 1999-2001 upcycles. On EV/replacement value, ATW currently trades at approximately 101% versus the peer group average of approximately 116%. On balance, we believe ATW's valuation relative to the peer group is fair.
FY1Q06 RESULTS BELOW GS EST BUT AHEAD OF CONSENSUS Atwood recurring FY1Q06 EPS of $0.41 was above consensus $0.39 and below GS $0.45. Revenue was 2% above our estimate, offset by expenses that were 8% above our estimate. EBITDA was $1.6mm (9%) below our estimate, offset by 6% lower than expected D&A.
WE HAVE LOWERED OUR 2006 ESTIMATES. Changes to our 2006 estimates were driven by:
(1) 6% increase in total annual operating expense and 5% reduction in average annual dayrate assumption due primarily to delayed start of higher dayrate contracts (Richmond, Hunter, Eagle) due to longer than expected terms on existing contracts (-$1.20 EPS impact) and offset by
(2) lowered depreciation assumption (+$0.27) and
(3) lower tax rate (+$0.50). See Exhibit 1 for detail.
WE HAVE RAISED OUR 2007 ESTIMATES. Changes to our 2007 estimates were driven by:
(1) 5% increase in average dayrate and 5% utilization assumption increase offset by 16% increase in total offshore operating expense (+$0.24 EPS impact)
(2) lower depreciation (+$0.11);
(3) lower tax rate (+$1.24). See Exhibit 1 for detail.
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Jason Gilbert, Terry Darling. |
