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Gold/Mining/Energy : Ensco International Inc. (ESV)
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To: Wrig who wrote (1018)4/7/1998 1:20:00 PM
From: Grommit  Read Replies (2) of 2005
 
I disagree with your calculation.

If they idle 2 rigs and lose $11.5 million of revenue and revenue drops by 4.9% it does not mean that earnings drop by the same percentage.

Taking your scenario that revenue were to drop by $11 million, we would need to know how much fixed costs are. Then take out taxes. Then divide by 141 million shares. Your answer could be in the correct ballpark, but a fluke, I think. BTW, EPS estimate is presently at .58 in yahoo.

Bigger risk is that day rates drop by 10-15%. Then take out $35 million from sales and profits, or $20 million from profit after tax, or .14 per share.

We drop 20% in dayrates, and have slightly lower utilization, and this company is earning .30 to .40 cents per qtr and might not be a screaming buy at today's prices. This must be what risk 'the market' has factored into the price.

...
The boats, which get no respect, are isolated by one level here. If rig dayrates drop, no big deal. As long as the rigs keep operating boat demand is high. No direct link between rig dayrate and boat dayrate. It is similar to the non-link between oil price and rig dayrate. (We are ultimately all tied together however.) But boats have one more layer of insulation from events which affect demand.

On the other hand, boats can be built quicker. On the other hand they an be relocate easier to keep working....
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