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Gold/Mining/Energy : Ensco International Inc. (ESV) -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (1927)	7/8/2001 10:54:45 AM
From: DELT1970	Respond to of 2005

The Bull Market Report - bullmarket.com NEWS FLASH: BULL MARKET REPORT ADDS ENSCO INTERNATIONAL A leading offshore drilling contractor and marine transportation firm, Ensco International (ESV, $21.50) has delivered solid results in recent quarters due to continued strong demand for oil and natural gas. The company owns 54 offshore rigs, composed of 37 jack-ups, nine barge rigs, seven platform rigs, and one semisubmersible that is capable of drilling to 8,000 feet. Meanwhile, the firm also conducts a marine transportation business through the use of five anchor handling tug supply vessels and 23 supply vessels. Ensco is an international oil services giant with operations throughout the globe. About 60% of Ensco’s jackup rigs are located in the Gulf of Mexico, 22% are located in the North Sea, and 18% operate in the Asia Pacific region. Although the firm’s rigs are located in different parts of the globe, U.S.-based customers accounted for 66% of revenues in 2000. More specifically, two domestic integrated oil giants, Exxon Mobil (XOM, $87) and Chevron (CHV, $91), accounted for 18% and 11% of revenues last year. Ensco’s shares performed well in 2000 as investors sought a safe haven from the volatile technology sector. Heading into 2001, however, the stock came under pressure on concerns of weakening global economies and potential supply issues. The first three months of this year saw Ensco trade up to its 52-week high of $45 in early March, but lingering nervousness among investors has since sent the stock down to the low-$20s. With most companies and analysts expecting oil and natural gas prices to remain at high levels throughout 2001, the major and independent oil players are poised to raise exploration and production spending by at least 20% this year. This will create a very favorable backdrop for Ensco’s utilization rates, revenues and margins going forward. From a P&L standpoint, Ensco’s business model enables significant operating leverage when revenues and dayrates (the rates the firm charges other firms for use of its rigs and other drilling/transportation equipment) are trending upward. That being said, the firm’s operating income and cash flow should grow at very healthy levels in 2001 and 2002. In turn, Ensco’s depressed share price represents a compelling value in light of this favorable outlook. In the fourth quarter of 2000, jackup utilization rates were flat Q/Q at 91%, but related dayrates rose 13%. Meanwhile, boat utilization rates increased to 75% versus 63% Q/Q, with a corresponding increase in dayrates of 14%. This favorable operating environment has extended into the first half of 2001, and has sent Ensco’s profit margins through the roof. The firm currently boasts operating margins near 40% and net profit margins well above 20%. Based on expectations of rising dayrates, especially in the Gulf of Mexico and the North Sea, management expects margins to continue to widen in the coming quarters. Largely due to higher dayrates and rig utilization, Ensco’s first-quarter earnings remained extremely healthy. 1Q01 revenues of $195 million were up 67% Y/Y and 14% Q/Q. Even more impressively, the company generated a 37% operating margin versus less than 20% in the comparable period last year. The improvement and high level of Ensco’s operating margin is impressive. And given the firm’s relatively low overhead, Ensco managed to pull in net margins of nearly 25%, up from 14% Y/Y. 1Q01 earnings came in at $0.34 per share, up nicely from $0.14 Y/Y and $0.26 Q/Q. North American drilling activity has been strong in recent years, driven by strong demand for natural gas. This action is being supplemented by accelerating deepwater oil activity in overseas markets. Ensco should continue to benefit from this favorable mix by leveraging its large jackup fleet in the Gulf of Mexico, and by expanding its deeper water capabilities. The recently constructed Ensco 7500 semisubmersible rig is a big step forward for the company as well. In short, we remain bullish on the oil and gas business as a safe haven during a time when a number of other sectors are on the decline. Ensco is financially sound, with a strong balance sheet and solid cash flow. At current levels, the shares trade at only 8 times forward earnings (2002 estimates stand at over $3.00 per share). This forward multiple is very favorable in light of Ensco’s strengthening fundamental outlook. We hereby add Ensco International (ESV) at an intraday price of $21.50 per share. We are going to add the stock to our newly created Energy Portfolio (see tonight’s issue for more details). We will initiate coverage on Ensco with a rating of “2” and a 12-month price target of $30 per share.