Rig Demand Projections Remain High (UBS, SDRL)
UBS (UBS), my favorite big international bank, just upgraded SeaDrill (SDRL), my favorite drilling company.
Normally, a single upgrade of a mid-size company that has already climbed dramatically over the past year might not be that significant -- but in this case, the price target was close to 40% above yesterday's share price, and shares drove up 8% overnight on the Norwegian Bourse to a US equivalent of about $19 this morning. That's definitely significant.
UBS had some good reasoning in their upgrade -- basically, that SeaDrill has most of its inventory available to sign contracts at today's high rates and is therefore more leveraged than other ocean drillers to the incredibly high rates rigs are demanding right now and (expected) over the next several years -- "demand forecasts for rigs outstrip supply until 2009."
And they also noted some other things that were important to me in choosing to invest in SeaDrill over other ocean drillers, even though it's a pain in the neck to buy on the pink sheets (though easy for folks who don't mind dealing with foreign exchanges, it's got lots of volume in Oslo):
A brief article about the upgrade is available here if you want the word from a more reliable source. And as a tiny added boost to the stock, SDRL is being added to the MSCI world index at the end of the month.
This continued confidence in growth for the drillers shoulud be good news for my other drilling-related name as well, as Keppel Corporation (KPELY) is benefitting from the increased demand for rigs because they are the largest builder of rigs and they're currently upgrading and expanding their yards to increase their output to meet this demand from companies like SeaDrill.
Nice to see a couple of my companies working together -- good recommendation, UBS.
Normally, a single upgrade of a mid-size company that has already climbed dramatically over the past year might not be that significant -- but in this case, the price target was close to 40% above yesterday's share price, and shares drove up 8% overnight on the Norwegian Bourse to a US equivalent of about $19 this morning. That's definitely significant.
UBS had some good reasoning in their upgrade -- basically, that SeaDrill has most of its inventory available to sign contracts at today's high rates and is therefore more leveraged than other ocean drillers to the incredibly high rates rigs are demanding right now and (expected) over the next several years -- "demand forecasts for rigs outstrip supply until 2009."
And they also noted some other things that were important to me in choosing to invest in SeaDrill over other ocean drillers, even though it's a pain in the neck to buy on the pink sheets (though easy for folks who don't mind dealing with foreign exchanges, it's got lots of volume in Oslo):
- SeaDrill's management has a history of using significant leverage to take advantage of good operating environments.
- And SeaDrill's management has a history of returning cash to shareholders -- UBS estimates that SDRL will return $4 billion to shareholders over the next three years, which is a huge amount of money for a company whose market cap is currently close to $7 billion ... though if you were a Frontline (FRO) investor over the last few years you won't find this surprising from a John Fredriksen company.
This continued confidence in growth for the drillers shoulud be good news for my other drilling-related name as well, as Keppel Corporation (KPELY) is benefitting from the increased demand for rigs because they are the largest builder of rigs and they're currently upgrading and expanding their yards to increase their output to meet this demand from companies like SeaDrill.
Nice to see a couple of my companies working together -- good recommendation, UBS.
This article posted by One Guy @ 5/11/2006 10:17:00 AM 0 comments
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