Buy Aban Offshore for target Rs 3,569: Sharekhan
Sharekhan has maintained ‘buy’ on Aban Offshore for a target price of Rs 3,569.
By ET Online |
MUMBAI: Sharekhan has maintained ���buy��� on Aban Offshore for a target price of Rs 3,569. The brokerage has realigned their estimates for Aban Offshore post the release of its 2007-08 annual report and also taking cues from its latest corporate presentation.
On consolidated basis, Aban Offshore���s debt further increased to Rs 13,043.4 crore (debt:equity of 16:1) against Rs 10,852.5 crore in the previous year on account of a higher capital expenditure. However, on account of excellent cash flow growth, Sharekhan expects the debt-equity ratio to come down to 5.8x in 2008-09 and to 2.3x in 2009-10.
Aban has also informed in its annual report that the Russian Federal State Property Agency has filed a proceeding seeking invalidation of the bareboat charter agreement between Arktik and Beta Drilling (for rig Murmunskaya) and between Arktik and Venture Drilling AS (for Deep Venture).
Although the company assures that they are likely to win the case, any negative surprise from the above would have a negative impact on the future earnings of the company, as the two rigs combined are expected to contribute almost $169 million (about Rs 677 crore) to the consolidated top line in 2008-09.
The risk pertaining to variation in foreign exchange movement still persists, so the company has entered into various derivative contracts to hedge currency and interest-related risks. As on March 31, 2008, the outstanding value of hedged forward covers/derivatives stood at Rs 1,872.04 crore (Rs 1,523 crore currency forward contracts and Rs 349 crore interest swaps).
The company maintains its optimistic outlook on the industry and expects the demand-supply mismatch of rigs to continue. However, the capital expenditure in shallow water is expected to remain stable while the bulk of the incremental E&P capital expenditure is now focused on deep and ultra-deep waters.
On account of delay in the deployment of some of rigs, higher borrowing cost, slight modifications in their day rate and exchange rate assumptions, Sharekhan has revised their estimates downwards by 10.1 per cent for 2008-09 and by 6.6 per cent for 2009-10.
At the current market price, the stock is quoting at 4.8x FY2010 estimates and at an enterprise value /earnings before interest, depreciation, tax and amortisation of 4.1x. As of now, the global majors in the offshore service segment are quoting at one-year forward price earnings ratio of 7.8x and at an EV/EBIDTA of 6.6x.
Sharekhan has valued Aban at 8x FY2010 earnings, which is slightly higher than the global average on account of its higher return on equity despite its high debt currently.
On consolidated basis, Aban Offshore���s debt further increased to Rs 13,043.4 crore (debt:equity of 16:1) against Rs 10,852.5 crore in the previous year on account of a higher capital expenditure. However, on account of excellent cash flow growth, Sharekhan expects the debt-equity ratio to come down to 5.8x in 2008-09 and to 2.3x in 2009-10.
Aban has also informed in its annual report that the Russian Federal State Property Agency has filed a proceeding seeking invalidation of the bareboat charter agreement between Arktik and Beta Drilling (for rig Murmunskaya) and between Arktik and Venture Drilling AS (for Deep Venture).
Although the company assures that they are likely to win the case, any negative surprise from the above would have a negative impact on the future earnings of the company, as the two rigs combined are expected to contribute almost $169 million (about Rs 677 crore) to the consolidated top line in 2008-09.
The risk pertaining to variation in foreign exchange movement still persists, so the company has entered into various derivative contracts to hedge currency and interest-related risks. As on March 31, 2008, the outstanding value of hedged forward covers/derivatives stood at Rs 1,872.04 crore (Rs 1,523 crore currency forward contracts and Rs 349 crore interest swaps).
The company maintains its optimistic outlook on the industry and expects the demand-supply mismatch of rigs to continue. However, the capital expenditure in shallow water is expected to remain stable while the bulk of the incremental E&P capital expenditure is now focused on deep and ultra-deep waters.
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On account of delay in the deployment of some of rigs, higher borrowing cost, slight modifications in their day rate and exchange rate assumptions, Sharekhan has revised their estimates downwards by 10.1 per cent for 2008-09 and by 6.6 per cent for 2009-10.
At the current market price, the stock is quoting at 4.8x FY2010 estimates and at an enterprise value /earnings before interest, depreciation, tax and amortisation of 4.1x. As of now, the global majors in the offshore service segment are quoting at one-year forward price earnings ratio of 7.8x and at an EV/EBIDTA of 6.6x.
Sharekhan has valued Aban at 8x FY2010 earnings, which is slightly higher than the global average on account of its higher return on equity despite its high debt currently.
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