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

To: Dennis Roth who wrote (1933)	10/26/2005 8:34:01 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 2005

Ensco (IL/A): Raising fair value to $60 = 30% upside potential - Goldman Sachs - October 25, 2005 We are raising our 2005/06/07 estimates for ESV to $1.72/$4.38/$5.40 from $1.68/$3.96/$5.00 on higher US Gulf and North Sea jackup dayrates and a lower 2006 tax rate. Jackup dayrates continue to surge, with ESV reporting $90k/ day for a 250'C in the US Gulf + $140k/ day for a 400'C = both new highs for the current cycle. The US Gulf is presently showing the greatest acceleration in pricing as a result of hurricane-driven rig attrition, we think, but similar dynamics are inevitable in foreign markets. We are increasing our fair value estimate for ESV to $60 (8.5x 2006E EBITDA) from $58 = 31% upside potential. However, near-term, we continue to prefer THE (IL/A) and RDC (IL/A) among jackup stocks given greater US Gulf exposure. We maintain an IL/A rating on Ensco. VALUATION. Ensco currently trades at 6.6x our new 2006E EBITDA of $951mm, a 5% discount to the peer group and a 41% discount to Ensco's historical upcycle EV/EBITDA multiple. On EV/DACF, Ensco trades at 8.3x, also a 5% discount to the group. Ensco shares are +45% YTD vs. +48% for the peer group. IMPLICATIONS FOR THE INDUSTRY. (1) Mgt believes the global jackup market remains in equilibrium with dayrates likely to continue rising in all markets. (2) Mgt sees a global shortage of 20-40 jackup rigs in 2006. (3) Middle East has an incremental need for 6-9 jackup rigs in 2006. (4) In W. Africa, leading-edge jackup dayrates are $100k-$130k. (5) Both dayrates and contract terms are increasing rapidly in the US Gulf. (5) Mgt suggested shallow water daily operating cost inflation would be approximately 4% in 2006 vs our estimate of 10-15%. WHAT TO WATCH FOR. (1) Ensco will recognize $18mm of stock option expense in 2006. (2) Newbuild jackup Ensco 107 to begin work in 1Q06. (3) 75% of Ensco's contracts reprice over the next 12 months. (4) No decisions yet made with respect to uses of excess cash, which is a topic for Nov 8th board meeting. KEY DRIVERS OF ESTIMATE REVISION. Our revision to 2006 EPS was driven primarily by a (1) 7% increase in US Gulf jackup dayrates and a 10% increase in Europe/Africa dayrates (+$0.25) and (2) a decrease in tax rate assumption (+$0.24). Our changes to 2007 EPS were driven primarily by: increases in US Gulf and North Sea jackup dayrates (+$0.48), slightly offset by higher depreciation expense (-$0.10 negative impact). See Exhibit 1 for details. Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Jason Gilbert; Terry Darling.