GlobalSantaFe (IL/A): Raising 2007E EPS; Prime beneficiary of rising global jackup dayrates - Goldman Sachs - May 08, 2006
We are raising our 2007E EPS for GlobalSantaFe to $7.40 from $7.29 on continued strength in jackup dayrates. With approx. half of GSF?s jackup days still uncontracted in 2007, the company has leverage to rising rates in almost every market (i.e., +$0.06 EPS leverage to +$5k change in US Gulf JU dayrates; +$0.03 M. East; +$0.04 W Africa). Cost inflation risk remains, however, we already factored in +20%/+10% inflation assumptions in our revised 06/07 estimates. We are lowering our 06E EPS to $4.03 from $4.21 on higher shipyard days and delays in the start of higher rate contracts. We are also introducing 08E EPS of $8.71. We believe it is likely GSF announces a newbuild floating rig in the near term. After RIG, GSF has the next most acute cash build problem, with an est $2.2bn net cash by year end 2007. Our fair value remains at $71, +15% upside. Maintain IL/A. Valuation: On 2007E EV/DACF, GSF trades at 7.2x, a 4% discount to the peer group vs. a 2% discount historically. On 2007E EV/EBITDA, GSF trades at 6.2x, a 10% premium to the peer group. YTD, GSF's stock performance has been in-line with the peer group. Strong Q106 Results: GlobalSantaFe's recurring 1Q06 recurring EPS of $0.65 was above our estimate of $0.61 and consensus $0.62.
Key drivers of variance to expectations include:
(1) higher contract drilling revenues (+$0.07);
(2) higher Oil and Gas operating income (+$0.01); and offset by
(3) lower revenues and higher expenses at ADTI (turnkey) (-$0.03); and
(4) higher SG&A (-$0.02).
Total drilling expenses were 1% below our estimate, making GSF one of the only drillers to not negatively surprise on the cost side.
What to watch for:
(1) 2Q contract drilling expense revised upwards to the mid- to upper-$260mm range from mid $250mm given the startup of the Development Driller I and the addition of several repair projects. FY2006 guidance remains at $1.04bn.
(2) With ADTI expected to complete approximately 24-26 turnkey projects in 2Q, revenues for the segment are projected to increase close to $20mm over 1Q.
(3) Tax rate guidance for the rest of the year revised to 13%.
(4) Mgt expects to have most of the deepwater fleet contracted into the 2012/2013 timeframe over the next year.
(5) Potential migration of Galaxy II from to the N. Sea by the end of the year.
(6) Announcement on another deepwater newbuild.
(7) Further share repurchase under company's current $2bn share repurchase authorization.
Implications for the industry:
(1) Mgt sees continued interest from operators in the deepwater segment in multi-year commitments commencing in '08 and '09 for existing rigs and for potential newbuilds.
(2) With the fixture for the Arctic II at $380k recently, mgt expects the next round of fixtures on the N. Sea 2nd gen. fleets to hit new highs at above $400k.
(3) High end of M. East fixtures seen rising to $140k from $120k in March.
(4) With the expectation that 5+ rigs will migrate out of GOM by year end, mgt continues to see upside potential for GOM dayrates.
(5) Cost for 5th gen. semis and drillships estimated to be in the low $600mm.
We have lowered 2006E EPS to from $4.21 to $4.03: Our revision to 2006 EPS was driven primarily by:
(1) higher shipyard days as well as a deferral of the start of higher priced contracts (-$0.31 EPS impact), and
(2) higher S,G&A and sharecount assumptions (-$0.06), offset by
(3) a slightly higher contribution from the Oil & gas segment (+$0.03),
(4) increased capitalized interest and interest income assumptions (+$0.09), and
(5) a lower tax rate guidance at 13% (+$0.07).
We have raised 2007E EPS from $7.29 to $7.40: Our revision to 2007 EPS was driven primarily by:
(1) higher dayrate and utilization assumptions (+$0.12 EPS impact),
(2) increased interest income (+$0.07) and
(3) a slightly decreased tax rate assumption ($+0.09), offset by
(4) a higher sharecount assumption (-$0.09).
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, Daniel Henriques. |
