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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (43)	11/9/2007 10:37:28 AM
From: Dennis Roth	Respond to of 111

KBR, Inc. (KBR): Key takeaways from GS Industrials Conference; upbeat outlook - Goldman Sachs - 11/08/07 News Cedric Burgher, CFO of KBR, joined us at the Goldman Sachs Industrials Conference in New York City. Analysis The tone of the discussion was upbeat; we highlight three key takeaways: Robust end markets with capacity to take on large, new awards: Although a significant increase in project costs are resulting in longer award lead times, KBR remains positive on end market demand, particularly LNG, petrochemicals, and refining. Bonny Island Train 7 (FID expected in 3-6 months) and Gorgon continue to move along, which we believe KBR and its JV partners have a significant edge in winning. Within petroleum end markets, customers are still generally not contemplating project scenarios above $40-50/barrel of oil, a positive sign that the energy infrastructure build-out is likely to see an extended cycle. Focused on ROC and risk adjusted returns: Instead of purely looking to maximize absolute margins and revenue growth, KBR management is highly focused on return on capital and risk adjusted return metrics. For example, although lower margin, KBR sees industrial services as attractive, given minimal required capital and low risk. Accordingly, KBR is looking to increase O&M activity as part of an initiative to diversify overall end market exposure. We forecast KBR will realize ~100 bp of average annual margin expansion during the next three years due to improved contract terms and a decreasing percentage of lower margin G&I activity. Acquisitions remain the preferred use of cash: KBR has approximately $1.1 billion of excess discretionary cash. Acquisitions are most likely to be small, accretive bolt-ons with strong synergies, although larger acquisitions will not be ruled out. Implications We have a positive bias to KBR, though we remain Netural on a relative basis within the E&C sector. Our price target and estimates are unchanged.