Ensco PLC, (NYSE: ESV) operates through three segments: Floaters, Jackups, and Other. The company owns and operates an offshore drilling rig fleet in the Middle East, Africa, and the Asia Pacific. It also offers management services on rigs owned by third-parties. The company serves government-owned and independent oil and gas companies. Ensco plc was founded in 1975 and is headquartered in London, the United Kingdom.
More recently, UBS has upgraded Ensco to from Neutral to Buy with a price target of $8.00 (from $6.00). The research house foresees a critical inflection in offshore utilization for floaters and jackups with an underlying belief that demand will slowly return in 2018. Oil prices are expected to remain range-bound around $50 and move higher in 2019/2020 and, creates a compelling valuation to enter now ahead of this inflection point.
In fact, several other research firms also recently issued favorable reports on ESV. Four analysts have rated the stock with a sell rating, seven have assigned a hold rating, and nine have assigned a buy rating to the company’s stock. The stock currently has an average rating of Hold and a consensus target price of $9.57.
On October 6th, ESV announced the completion of its acquisition of Atwood Oceanics, Inc. Under the terms of the merger agreement, Atwood shareholders are entitled to receive 1.60 Ensco Class A ordinary shares for each share of Atwood common stock they own. Ensco and Atwood shareholders will own approximately 69% and 31%, respectively, of the outstanding shares of the combined company. Regarding the completion of the transaction, Atwood common stock has ceased trading on the New York Stock Exchange.
Ensco has used timely acquisitions to grow into one of the leading offshore drilling companies, and the addition of Atwood is another major milestone in its progression. By acquiring Atwood at a pivotal time in the market cycle, Ensco purchased very high-quality assets at compelling prices as values for the highest-specification assets are at a critical inflection point.
Additionally, these high-specification assets will further ESV’s ability to meet increasing customer demand and strengthen its competitive position, which coupled with significant expected synergies, will generate meaningful, long-term value for shareholders.
Synergies due to acquisition:
The past few days or so have been quite eventful for Ensco, and stock of the company has gained significant strength. The improving sentiments in the offshore drilling sector are led by the positivity within oil producers to look forward to new opportunities to increase their fast depleting oil & gas reserves, at a relatively compelling cost.
Moreover, Global Utilization has stabilized, as commodity prices and project economics have improved and with the slow recovery in oil prices, Ensco is likely to turn this acquisition as an extremely successful move and value creator for its shareholders. Therefore, Ensco shares have a good opportunity to continue their upside move over the near to medium term.
About the Company: Ensco plc brings energy to the world as a global provider of offshore drilling services to the petroleum industry. For 30 years, the Company has focused on operating safely and going beyond customer expectations. Operating one of the newest ultra-deepwater rig fleets and a leading premium jackup fleet, Ensco has a major presence in the most strategic offshore basins across six continents. Ensco plc is an English limited company (England No. 7023598) with its corporate headquarters located at 6 Chesterfield Gardens, London W1J 5BQ.
2017 Second quarter financial results:
Revenue and net loss: Revenues were $458 million in second quarter 2017 compared to $910 million a year ago. Excluding $205 million of early contract termination settlements received during second quarter 2016, revenues declined 35% compared to the year-ago period. Fewer rig operating days due to a decline in reported utilization to 56% from 61% in second quarter 2016 as well as previously announced sales of rigs that operated a year ago also contributed to lower year-to-year revenues. The average day rate for the fleet declined to $156,000 in second quarter 2017 from $195,000in second quarter 2016. The company reported ($0.10) EPS for the quarter, topping the consensus estimate of ($0.12) by $0.02.
Contract drilling expense declined to $291 million in second quarter 2017 from $350 million a year ago as lower personnel and other activity-based costs due to fewer rig operating days more than offset costs related to the settlement of a previously disclosed legal contingency and contract preparation costs.
Interest expense in second quarter 2017 was $60 million, net of $14 million of interest that was capitalized, compared to interest expense of $54 million in second quarter 2016, net of $13 million of interest that was capitalized. The year-on-year increase in interest expense is primarily due to senior convertible notes issued in fourth quarter 2016, partly offset by debt repurchases. Second quarter 2016 other income included a $261 million gain on the repurchase of $940 million of senior notes at an average discount of 27%.
The firm also recently disclosed a quarterly dividend, paid on, September 22nd. Investors of record on September 11th were issued a $0.01 dividend. The ex-dividend date was September 8th. This represents a $0.04 annualized dividend and a yield of 0.70%. Ensco Plc’s dividend payout ratio is currently 23.53%.
Key risk factors and potential stock drivers:
- The development and exploitation of alternative fuels; Disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk thereof;
- Improvement or stability in oil prices could improve the company’s performance;
- Natural disasters or incidents resulting from operating hazards inherent in offshore drillings, such as oil spills, and;
- The worldwide military or political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which ESV operates, or acts of terrorism.
On Monday, October 9th, 2017, in intra-day trading, ESV was at $5.68 on volume of 7.2 million shares exchanging hands. Market capitalization is $1.73 billion. The current RSI is 59.40
In the past 52 weeks, shares of ESV have traded as low as $4.10 and as high as 12.04
At $5.68, shares of ESV are trading above its 50-day moving average (MA) at $4.97 and below its 200-day MA at $7.42
The present support and resistance levels for the stock are at $5.56 & $5.83 respectively.
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