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Strategies & Market Trends : Value Investing

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From: E_K_S	3/15/2014 3:25:33 PM
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Seadrill Partners LLC (NYSE: SDLP) SeaDrill Limited (NYSE: SDRL) Ship Finance International Limited (NYSE: SFL) I own a few shares of SDRL (avg cost @ $34.39/share) and a much larger position in SFL (avg cost $10.80/share). In 2012 SDLP was created by CEO Fredriksen to provide a "drop down" MLP entity for many of SDRL's assets. Prior to that, SFL was the financing arm for their deep water drill rigs that SDRL owned and operated. SDLP has done a few secondary offering for units to raise capital with the latest closing 12/10/2013 for 11.2Mln units @ $29.50/unit. On 3/11/2014 the company announced a 10.4Mln offering of units priced at $30.60/unit with the proceeds used to finance the "drop down" assets from SDRL. I have been considering starting a buy in SDLP but I think I will add a few more shares of SDRL instead. CITI Bank released their analysis on SDLP and has a target price of $41.00/share. They believe that SDLP is 35% undervalued based on Fridays closing price of $30.51/share If you look on page 1-2 of their report, the CITI analyst provides their estimates for 2012-2016 of several valuation factors (pg-2- even provides their "CORE" EPS$). If I read the table correctly, the CORE numbers show no growth from 2014-2016. Seadrill has a total of 21.5Mln common share units in Seadrill Limited (see pg-9- of SDLP report) as underlying security (which represent about 30% ownership of the MLP entity). Therefore, my thought by owning SDRL, you get 30% ownership in SDLP (interest in all of those drop down assets) and interest in perhaps even better operating assets outside the MLP. I think the growth prospects for SDRL should be better than SDLP. The dividend for SDRL is 2.7% higher at 8.3% vs SDLP at $5.6% I have a small buy in SDRL below $33.00/share. So what's the better value proposition SDRL or SDLP? EKS

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