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

To: Dennis Roth who wrote (1939)	4/25/2008 9:20:58 AM
From: Dennis Roth	Respond to of 2005

ENSCO International Inc. (ESV): High BS flexibility but still cautious on international jackups - Goldman Sachs - April 25, 2008 What's changed Ensco reported 1Q2008 EPS of $1.90, above our $1.87 estimate and consensus of $1.81. We adjusted our 2008-2010E EPS by 2%/1%/1% to $8.32/$8.66/$9.10 primarily due to higher contract drilling revenue estimates. Our 12-month price target of $67 is based on 6.3X 2009E DACF. Implications We remain Neutral rated on ESV. Our negative view of the international jackup market is partially offset by the company’s financial flexibility. Key takeaways: (1) 2008 cost inflation guidance was increased to 15% from 12-13% due to higher labor costs. While this a clear negative, ESV should fair better than peers in the near-term due to less planned shipyard time. (2) ESV is adding to its deepwater newbuild effort and is likely to build a $515mm semi with a 2H11 delivery. The company’s strategy of building less expensive and less capable floaters appears to offer superior returns and should be viewed as a positive. (3) ESV is likely to step up share buybacks which could add support to the stock. ESV is in a positive cash position ($665mm) and has a 2008/09E FCF yield of 6%/10%. Balance sheet optionally could also limit downside. (4) Management defended the company’s jackup exposure by highlighting high contract coverage (84%/44% in 2008/2009) and that many of the rigs are working at below market rates. While all of this is true, higher roll over rates are already factored into forward estimates. This posture also suggests to us that management is at least partially concerned with a softer international jackup market – an outcome that we continue to expect. Valuation Ensco currently trades at 6.2X/5.3X 2009E EV-DACF/EV-EBITDA, a -1%/13% premium to closest peer Rowan. Key risks Risks include capacity additions or a decline in commodity prices.