Increasing target to Rs 3530
On the back of improving earnings visibility and continued robust day rates as evidenced by recent order win announcements. Our new target is based on a P/E of 8x fully evolved earnings, likely to be achieved by FY10E (and discounted back), at the lower end of global peer comps. Aban remains a material, leveraged play on the tight offshore services market. We rate the stock a Buy (1M.
Jackup market strong despite supply addition concerns
Though the international (ex-GOM) jackup market remains strong with utilizations in excess of 95%, supply additions are a risk. Deficits in several international markets should, however, result in absorption of newbuilds entering the market over the next 9-12 months without impacting day rates. The long-term outlook for the sector remains solid, with steadily rising long-term oil price expectations.
Revising FY08-10E earnings
We are revising our FY08E EPS downwards by 21% to factor in delays to the drilling schedules of a couple of rigs. Our FY09E EPS remains relatively unchanged, while we have modestly increased our FY10E EPS forecasts by 5%, driven by a combination of new contract wins, updated newbuild delivery dates, FY07 annual report details, and a lower diluted share count following fixing of the FCCB conversion price.
Risks
Slowdown in offshore services demand growth, downturn in global jackup day rates, and delays in rig deliveries could have a significant impact on Aban given its high gearing. Re-pricing of some of Aban's assets, in particular four domestic rigs, could be catalysts for stock performance in the near term.
On the back of improving earnings visibility and continued robust day rates as evidenced by recent order win announcements. Our new target is based on a P/E of 8x fully evolved earnings, likely to be achieved by FY10E (and discounted back), at the lower end of global peer comps. Aban remains a material, leveraged play on the tight offshore services market. We rate the stock a Buy (1M.
Jackup market strong despite supply addition concerns
Though the international (ex-GOM) jackup market remains strong with utilizations in excess of 95%, supply additions are a risk. Deficits in several international markets should, however, result in absorption of newbuilds entering the market over the next 9-12 months without impacting day rates. The long-term outlook for the sector remains solid, with steadily rising long-term oil price expectations.
Revising FY08-10E earnings
We are revising our FY08E EPS downwards by 21% to factor in delays to the drilling schedules of a couple of rigs. Our FY09E EPS remains relatively unchanged, while we have modestly increased our FY10E EPS forecasts by 5%, driven by a combination of new contract wins, updated newbuild delivery dates, FY07 annual report details, and a lower diluted share count following fixing of the FCCB conversion price.
Risks
Slowdown in offshore services demand growth, downturn in global jackup day rates, and delays in rig deliveries could have a significant impact on Aban given its high gearing. Re-pricing of some of Aban's assets, in particular four domestic rigs, could be catalysts for stock performance in the near term.
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