ESV - Embedded Expectations Analysis - 2018 08 29
Ensco plc (ESV:USA) currently trades near historical lows, and well below asset values, relative to UAFRS-based (Uniform) Assets, with a 0.4x Uniform P/B, implying bearish expectations for the firm. Moreover, while management has concerns about contract discussions and total spend indicate near-term upside may be limited, overly bearish market expectations support long-term outperformanceSpecifically, management may lack confidence in their ability to convert increased direct discussions with customers into a pipeline of work for the future. They may also be concerned about having to push projects into 2019, and about the expectation for ENSCO AT to be retired from the global rig fleet. Furthermore, they may be overstating the impact that the completion of ENSCO Ds-6's had on the decline in average day rates, and the impact that the startup of ENSCO 140 and 141 had on increased interest expense. Finally, they may be concerned about continued increases in total contract spend
Although management's concerns suggest the potential for near-term headwinds, market expectations still appear far too bearish, given ESV's business model and historical profitability. As such, multiple expansion and equity upside are warranted in the long-term
Ensco is an offshore contract drilling company engaged in providing offshore contract drilling services to the international oil and gas industry. As of Dec 31 2017, Co. owned and operated an offshore drilling rig fleet of 62 rigs. Co.'s rig fleet includes 12 drillships, 11 semisubmersible rigs, four moored semisubmersible rigs and 38 jackup rigs, including rigs under construction. Co.'s business consists of three operating segments: floaters, which includes its drillships and semisubmersible rigs; jackups; and other, which consists of management services on rigs owned by third-parties. Co.'s two reportable segments, floaters and jackups, provide one service, contract drilling.
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