Pride Petroleum Services (PDE) Message Board

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Gold/Mining/Energy : Pride Petroleum Services (PDE)

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From: Dennis Roth	9/11/2007 7:40:43 AM
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Undervalued deepwater exposure – reinstating Buy rating - Goldman Sachs - September 11, 2007 Source of opportunity We have removed the Not Rated designation on Pride International and now have a Buy-rating and a 12-month price target of $43 (18% upside potential). Management has successfully divested the company’s Latin American business and repositioned the company as a pure offshore driller. We believe Pride’s assets are undervalued by the market and see the company as an attractive acquisition target (although this is not the reason for our Buy-rating). We are bullish on deepwater fundamentals and believe management’s recent decisions to build a drillship (with an option for another) and acquire a second drillship are steps in the right direction. Catalyst We see the following as potential catalysts for Pride’s stock: (1) contracts for the two newbuild drillships; (2) term contracts with PEMEX to move additional jackups out of the US Gulf of Mexico; and (3) an upcoming analyst meeting (November 27, 2007). Overall, we expect deepwater levered drillers to benefit from multiple expansion as backlogs increase and investors gain confidence in the longevity of the cycle. Valuation Our sum of the parts analysis implies a value between $41 and $45 for Pride shares, representing 13% to 24% upside from current levels. Our 12-month price target of $43 (=7.75X 2008 EV/DACF) is based on the mid-point value. Given our view that oil price risk is skewed to the upside, we think there is upside potential to our target. On 2008E EV-DACF/EV-EBITDA, Pride is trading at 6.8X/5.1X,a 5%/14% discount relative to peers (NE, GSF, DO, and ATW). Key risks Key risks include: (1) capacity additions could result in lower dayrates; (2) a severe correction in commodity prices could result in decreased drilling demand; and (3) cost pressures could be greater than expected.

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