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1、8 March 2019J卜 HSBCGlobal ResearchGlobal Oilfield ServicesEquitiesEnergy Equipment & ServicesUnited StatesAbhishek Kumar*AnalystHSBC Securities and Capital Markets (India) Private Limitedabhishek.kumarhsbc.co.in+91 80 4555 2753Tarek Soliman*, CFAAnalystH8BC Bank plctarek.solimanhsbc +44 20 3268 5528
2、David Phillips*Head of Equity Research, Developed EuropeHSBC Bank plcdavid.1 .phillipshsbc +44 20 7991 7558Anshak Singhal*AssociateBangalore* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulationsDisclosures & DisclaimerThis report
3、must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Buy Ensco and Rowan: Merger on trackShareholders approve the merger; closing expected in H1 2019; planned synergies of USD165m over two years Q4 2018 share pri
4、ce fall has made valuations compelling; we see asset-based value in the stocksWe resume coverage of Ensco and Rowan with Buy ratings (previously both rated Hold) on attractive valuationIn this report we resume coverage of Ensco and Rowan. We had been restricted on both since they announced their pla
5、n to merge in October 2018.Context: Rowan (RDC US, USD11.97) and Ensco (ESV US, USD4.34) shareholders have approved the merger deal between the two companies at an exchange ratio of 2.75 ESV shares for each RDC share. The US and UK anti-trust authorities have cleared the proposed combination and the
6、 merger is likely to close in H1 2019. Post closure of the deal, ESV expects to generate USD165m of synergies over a period of two years.Our view on the two companies essentially mirrors our view of the offshore drilling sector and is elaborated in detail in the report Offshore Drilling: Deep value
7、in deepwater, 25 February 2019. Despite a drawn-out offshore recovery, we think the fall in the two share prices over recent months presents an attractive opportunity. The stocks are at multiyear lows on price/book metrics, and although we expect the companies to be lossmaking until the early 2020s,
8、 we see good asset-based value in the stocks, backed by our proprietary rig market value calculations.Whats changed in this report: We adjust our forecasts to reflect the full-year 2018 results, new guidance, recent contract announcements, and our own lower utilisation assumptions for 2020-21. We cu
9、t our EBITDA forecasts for ESV by 18% and 13% for 2019-20. For RDC, we cut our 2019 EBITDA forecasts by 12% for 2019 and raise 2020 by 11 %. We reduce our rig market value (RMV) estimates by 11 % for ESV and 12% for RDC. We now derive our target price for RDC by using ESVs target price and share exc
10、hange ratio. We also present a pro forma combined RMV and DCF valuation for ESV post the merger.Investment view: Our last update on ESV and RDC was in September 2018. Since then the stock price of ESV is down by 42% and RDCs by 25%, Despite our lower target price for ESV of USD6.5 (vs USD7.6 pre-mer
11、ger announcement) and a share exchange ratio based target price for RDC of USD17.9 (vs USD17.4), we see attractive asset-based value and resume coverage on both stocks at Buy (both previously rated Hold).CurrentMarketCompany TickerCurr. price cap (USDm)Upside/ EV/EBITDA (x)PB (x)一Old rating New rati
12、ng Old TP New TP downside2019e2020e2019e 2020eEnscoESV USUSD4.341,897RowanRDC USUSD11.971,524Note: Current prices as of close 5 March 2019. Source: Bloomberg, HSBC estimatesHoldBuy7.606,5049.8%22.313.30.20.3HoldBuy17.4017.9049.5%64.617.90.30.4Rating and valuation summaryIssuer of report: HSBC Securi
13、ties and Capital Markets (India) Private LimitedView HSBC Global Research at: s:/ research.hsbc More recently, Shelf Drilling is buying two jack-ups from China Merchant for USD87m per jackup rig with an option to buy two more at a pre-determined price. Harsh environment rigs remain an active space w
14、ith Transocean picking up a one-third stake in an under-construction rig valued at USD500m. We think potentially there could be more such transactions due to the combination of stretched drilling companies and yards looking to sell rigs.We think this market will remain active and gain the attention
15、of a number of jack-up/harsh environment pure players in the market for assets - either second-hand or stranded new-builds at yards - such as Borr Drilling, Shelf Drilling and Odfjell Drilling.Recent deals and asset salesCorporation (EGPC)BuyerTargetDate of closureDeal size (USDm)Shelf Drilling2 Jac
16、k-up rigs from China MerchantsQ2 2019174Noble CorpJack-up from PaxOcean GroupQ1 201983.75TransoceanOcean RigQ1 20192,700Noble CorpJack-up from PaxOcean GroupQ3 201993.75EnscoRowanNot yet closedAll-stock dealTPAOGolden Close Maritime- one UDW deepwater rigOct 2018263Shelf DrillingOne jack-up from Dia
17、mond OffshoreQ3 201890Borr Drilling5 new-build jack-ups from yard15-May-18745Northern Drilling2 new-build drillships from yard10-May-18592Transocean33.3% stake in harsh environment rig10-May-18166EnscoAtwood Oceanics6-Oct-17839TransoceanSonga Offshore30-Jan-183400Borr DrillingTransocean Jack-ups (15
18、 Nos)31-May-171350Borr DrillingParagon OffshoreNA232.5Borr Drilling9 new-builds (Sembcorp)6-Oct-171300Not disclosedSemi-sub Rig (Sembcorp)25-Dec-17500Northern DrillingSemi-sub Rig (Hyundai Heavy)20-Dec-17400Borr Drilling2 JUs (Hercules Offshore)24-Jan-17130ADES International3 JUs (Nabors Drilling)20
19、-Dec-1783Egyptian General PetroleumEgyptian Drilling Company-100Source: Company data, HSBC calculationsM&A and restructuring continueTransocean leading the consolidation theme with Ocean Rig acquisitionM&A and restructuring theme likely to continue in the foreseeable future in this distressed market
20、With Transocean agreeing to buy Ocean Rig in a cash and stock deal, the consolidation theme continues in the offshore drilling market. The deal clearly cemented Transoceanic position as the leading ultra-deep water player in the market. RIG paid USD278m each for the nine acquired rigs, which is more
21、 or less in line with the current market rate for 7th generation rigs, and much lower than a build price in excess of USD500m. More recently Ensco and Rowan have agreed to merge in all-stock deal.Previous deals included Borr Drillings acquisition of bankrupt jack-up player Paragon Offshore that furt
22、her consolidated the jack-up market and makes Borr Drilling a major player. The company has retired most of the jack-ups bought to rationalise the market supply.We think the market still has significant potential to consolidate, with multiple players going through (or emerging from) restructuring an
23、d chapter 11 bankruptcies, such as Pacific Drilling, SeteBrasil and Seadrill. In some cases shipyards are also trying to sell cunder construction, rigs ordered by financially distressed buyers. We would also note that many established players have talked about their intention to enter into deals if
24、and when the pricing is right.Day-rate - Jack-ups (USD per day)Nov-14 May-15Nov-15 May-16 Nov-16 May-17Nov-17 May-18 Nov-18Worldwide JU 300ICWorldwide JU 300ICSource: IHS-PetrodataDay-rate - Floaters (USD per day)Source: IHS-PetrodataJack-ups - UtilisationMarketed Util %Total Util%Source: IHS-Petrod
25、ataFloaters - UtilisationFloater Marketed utilFloater Total Util.Source: IHS-Petrodata,0。3 9con ,0。寸scom sghocoms9ocom ,sejocom csgeocom agaocom 60COaocon aocon ,8con aocon aocon 意Source: IHS- Petrodata; data as of early February 2019Floaters - Recent fixtures (USD per day) (X axis is type of floate
26、r)9BM&8aIISCUHE S aBMs-8a mE S,I9BM8- aIISCUHE S00 号 iE S8岸5SE s35000030000025000020000015000010000050000 0Source: IHS-Petrodata; data as of early February 2019Share price performance across the sectorQ4 2018 was a forgettable quarter for offshore drillers with share price falls in excess of 50% for
27、 most of them; they gave up most of the years gain in Q4 to end 2018 down more than 35%. This was mostly due to a general sell-off in the sector with the softening of the oil price and the consequent realisation that an offshore recovery was still some way away. Rowan has outperformed other offshore
28、 drillers so far in 2019 after a favourable change in its share swap ratio for its merger with Ensco.Offshore drillers - share price performance 2018 h4Q 2018 YTDSource: Refinitiv DatastreamShare price performance and rig market valueRig Market Value (RMV) is our proprietary tool to estimate the cur
29、rent market value of a rig fleet, taking into account asset specifications and the value attached to drilling contracts. This approach has been useful as an additional method for estimating the current fair value of the offshore drillers, and in particular, acting as a potential valuation ceiling fo
30、r the companies.RMV explained: With near-term earnings estimates in a loss-making position, we believe a more appropriate way to look at such asset-heavy companies is on an asset-by-asset valuation basis. In our proprietary Rig Market Value (RMV) model, we estimate this via taking a view on the valu
31、e of each rig based on a number of factors, such as the rigs age, design, generation and location. We also add a premium to rigs that are currently working by calculating the present value of the contract backlog for that rig, and we factor in a level of discount for stacked rigs to reflect the like
32、ly start-up and re-activation costs (we assume moderate costs in the range of USD5-10m for warm-stacked jack-ups, USD20-25m for warm-stacked floaters and USD30-50m for cold-stacked floaters). We look at recent transactions of rigs and published reports from market data providers to arrive at our own
33、 estimate of the fair market value of a particular type of rig.We acknowledge these values are unlikely to be perfect numbers and that the value for each rig is determined based on its unique features, but we think our numbers give a good and realistic approximation of current market conditions. We
34、also point out that the recent transaction between Transocean and Ocean Rig broadly supports our asset value assumptions for 7th generation ultra-deepwater rigs. We note a good relationship between share price movements and RMV of the companies.Ensco - Share price performance vs rig market value (RM
35、V) (USD per share)Source: HSBC estimates, Refinitiv DatastreamRowan - Share price performance vs rig market value (RMV) (USD per share)Source: HSBC estimates, Refinitiv DatastreamCompany profilesEnsco (ESV US) New ESV is now much bigger with better fleet mix; opportunities to lower costs with USD165
36、m synergy target, and further rationalise the fleet by retiring older rigsPost-merger it will have good exposure to the resilient harsh environment jack-up market in the North Sea Attractive asset-based valuation; resume coverage at Buy (previously Hold) with a target price of USD6.5 (from USD7.6)In
37、vestment caseESVs mergers with Atwood and Rowan have improved its fleet mix giving it solid exposure to the harsh environment jack-up market in the North Sea. ESV has been rationalising its fleet by retiring multiple floaters and jack-ups and post the merger there is an opportunity to do even more.
38、There is also good potential to reduce some of the shore-based costs with ESV targeting USD165m of benefits spread over a period of two years once the deal closes. On the operations side marketed jack-up fleet utilisation is quite high with day-rates creeping up (though at a slow pace). Post the fou
39、rth quarter 2018 sell-off, the shares are at very attractive levels backed by RMV. We resume coverage after a period of restriction with a Buy rating from Hold previously.Changes in estimatesEstimate changes driven by company guidance and latest contract winsEstimate changes driven by company guidan
40、ce and latest contract winsWe change our estimates for Ensco to account for the third and fourth quarter results, latest fleet status, contract wins and the compan/s guidance on costs. Our revenue numbers are down on slightly lower day-rates and lower utilisation rates for ESVs fleet than we assumed
41、 previously.Ensco: Estimate changes (USDm except EPS)FY2018aFY2019eFY2020eFY2021eCurrentSales1,705.41,755.62,137.62,671.8EBITDA291.4277.1490.3884.9EBIT-187.5-196.9-12.0377.2HSBC net profit-536.0-511.2-349.918.0HSBC EPS-1.23-1.18-0.810.04PreviousFY2019eFY2020eFY2021eSales1,845.72,271.33,298.4EBITDA33
42、7.2561.71179.1EBIT-124.362.1585.4HSBC net profit-447.4-288.2208.3HSBC EPS-1.03-0.660.48Change (%)FY2019eFY2020eFY2021eSales-4.9%-5.9%-19.0%EBITDA-17.8%-12.7%-24.9%EBITnmnm-35.6%HSBC net profitnmnmnmHSBC EPSnmnmnmSource: Company data, HSBC estimatesWe do not make any significant changes to our cost a
43、ssumptions. As a result the impact on EBITDA is bigger than the impact on revenue. The top line moves down by 4.9% for 2019e and 5.9% for 2020e. We reduce EBITDA by 17.80% and 12.7% for 2019e and 2020e respectively.We adjust our proprietary rig market value (RMV) estimates to bring them in line with
44、 other offshore drillers. We also make adjustments for current contracts. Consequently our RMV estimate is down to USD6.5 from USD7.3 per share.As a result of the changes, we cut our target price for ESV to USD6.5 from USD7.6. We resume coverage with a Buy rating from Hold prior to the period of res
45、triction.Pro forma ESV valuation post-merger with RDCWe have not yet forecast a combined profit and loss account for the merged entity but have done a pro forma RMV valuation and a pro forma DCF valuation. Our pro forma RMV suggests a valuation of USD6.2 per share post the deal, slightly lower than
46、the current RMV of USD6.5 per share (this is due to a higher share count). Our pro forma DCF gives a value of USD7.4 per share, which is higher than the current DCF value of USD6.6 per share. The higher DCF is mostly due to synergy benefits of USD165m.Pro forma rig market value of ESV post-mergerDet
47、ailsUSDmEnsco RMV post net debt2,807Rowan RMV post net debt2,032Post-merger RMV4,839Shares post merger (m)784RMV per share6.18Source: HSBC estimatesPro forma DCF of ESV post-mergerDCF valuation (USDm)Beta Risk premium LT growthWACCAssumptionsf503.0%1.0%6.2%(USDm)EV 2017e net debt/associates/minorities market value per share (USD)discounted end-201811039.95220.75819.17.4Source: HSBC estimate