Pride Petroleum Services (PDE) Message Board

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

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From: Dennis Roth	2/29/2008 5:39:01 PM
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Pride International (PDE): Most undervalued deepwater driller-reiterate Conviction Buy - Goldman Sachs - February 29, 2008 What's changed PDE reported 4Q2007 EPS of $0.62, above our estimate of $0.54 and consensus of $0.55. We raised our 2008/09/10 EPS estimates by 5%/5%/6% to $3.63/$4.22/$4.20. We also raised our 12-month price target to $42 from $40 to reflect our higher estimates (8.6X 2008E EV/DACF). Implications We maintain our Buy rating on Pride shares (also on Conviction Buy list). We believe Pride’s assets are undervalued by the market and view the shares as an inexpensive way to gain exposure to the deepwater market. We estimate that Pride will generate over 60% of 2008E EBITDA from deepwater yet the shares are trading closer to jackup levered companies. (1) Management is clearly frustrated with the current valuation and is evaluating strategies to unlock value. We believe that the separation of the jackup fleet though a potential sale, spin, or IPO is the most likely alternative. This would highlight the current relative discount assigned to Pride’s floater fleet, in our view. (2) We believe that the economics of the recent six-year contracts signed for the Pride Portland and Pride Rio beginning in late 2010 with Petrobras are better than most realize. We estimate the present value of the contracted backlog associated with each rig to be roughly $350 million. This excludes a terminal value which would add another $100–$150 million to the current value, in our view. This is important to note because we believe that the market is assigning a significant discount to these rigs per our sum-of-the-parts analysis. Valuation PDE trades at 7.4X/5.7X 2008E EV-DACF/EV-EBITDA, a 27%/31% discount to peer deepwater drillers DO and RIG. Key risks (1) Capacity additions could result in lower utilization and dayrates; (2) cost inflation; and (3) a severe correction in commodity prices.

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