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Colby-Sawyer College - SDRL
- 1. ENGAGE 2015 Stock Pitch Competition Seadrill Limited (NYSE: SDRL)
- 2. Seadrill (NYSE: SDRL) • founded in 2005 • is the world’s largest oil and gas offshore drilling company based on market cap basis • incorporated in Bermuda • operate in countries that include Angola, Brunei, the Republic of Congo, Indonesia, Malaysia, ... • modern and reliable safety equipment
- 3. Seadrill (NYSE: SDRL) • CEO: Per Wullf . He has over 35 years experience in the drilling industry. • Market capitalization: $5.79 billion • Number of share outstanding: 494 million
- 7. Seadrill (NYSE: SDRL) 0 1000 2000 3000 4000 5000 6000 2010 2011 2012 2013 2014 Revenuethousands $
- 8. Seadrill (NYSE: SDRL) 0 500 1000 1500 2000 2500 3000 3500 4000 4500 2010 2011 2012 2013 2014 Net Incomethousands $
- 9. Seadrill (NYSE: SDRL) SDRL Industry Average P/E (ttm) 1.4 7.8 ROE (ttm) 46.5 8.4 ROA (ttm) 15.5 4.1 Source: Morningstar
- 10. Seadrill (NYSE: SDRL) -400 -300 -200 -100 0 100 200 300 400 500 2011 2012 2013 2014 Cash Flow thousands $
- 11. Seadrill (NYSE: SDRL) Source: Morningstar Why Seadrill? • SDRL is undervalued • Strong potential growth • Increase in sales and clients’ interest
- 12. Seadrill (NYSE: SDRL) Source: Morningstar In 12-month investment horizon, target price: $19 - $21 Return: 80%
- 13. Charger Team
- 14. Thank you! Charger Team - CSC Duc Trinh Prithul Karki Anh Duong Sijan Mali Hoang Phan Please contact duc.trinh@my.colby-sawyer.edu for any questions.
Editor's Notes
- Founded in 2005, Seadrill is a leading offshore deep water drilling company. The main headquarter is situated in Hamilton, Bermuda. Seadrill has operations in a number of key geographical locations such as Brunei, Indonesia, Nigeria, Brazil, the US and the UK, etc. And up to date, Seadrill has a fleet of 69 rigs that are either under operation or construction to drill oil and gas from shallow to ultra-deep-water. Moving on, I would like to take a brief moment to highlight the values of the company’s business model. Their business strategy is to develop modern state-of –the-art offshore drilling plants and combine those assets with highly capable workforce to create safe operations. As our team advocates the purchase of Seadrill stocks, we firmly believe in Seadrill’s business strategy which gives a solid foundation for the short-term as well as the long-term financial benefits for the company. To re-emphasize Seadrill’s focus on safe operations of the oil rigs and understand why it is of utmost importance to its customers and potential stock holders alike, let us think back to the British Petroleum oil spill in the Gulf of Mexico in 2010. The spill had a major financial backlash on BP. Sales dropped up to 40% during the year of the crisis. Most of Seadrill’s rigs were built after 2008 and are equipped with modern and reliable safety devices engineered to prevent incidents of similar risk. While some of the older players in the industry have retired their oil rigs and have rigs which are not aging gracefully, Seadrill has the advantage of being the new player on the market equipped with the power of recent engineering. To dip into the background of Seadrill’s leadership, a gentleman named John Fredriksen has served as the Chairman of the Board since the company’s formation in 2005. Mr Fredriksen is also the top key executive of Hemen Holding Limited, which happens to be the largest shareholder of Seadrill. Per Wullf was appointed CEO in July 2013. He has over 35 years’ experience in the drilling industry.
- In 2014, oil price tumbled tremendously owing to the political disagreement within the OPEC members. Generally this has been a good sign for the US because it helps stimulating the economy where oil is needed for almost all industries. Lower oil price has encouraged consumer spending The energy industry, on the other hand, has been challenged due to the fact that most oil consumed in the US is produced from shale gas technology. This technology normally cost about $60/barrel of oil, that’s why many oil and gas companies have been through a difficult time when the oil price went below 60$/ barrel. Since S is an off shore company, the cost of producing oil is much less than the price of producing oil from shale. That’s one big reason why S is considered to be less influenced by the oil tumbling. Hense, it should be less risky compare to other companies in the energy sector.
- Seadrill’s stock price has dropped more that the oil and gas industry as a whole. The companie’s stock droped 73% from September 2014 to January 2015, while the price of a barrel of oil when down 53% at the same time. It can be seen that investers lost expectation in the energy sector in general. However with the performance of the company this indicates that the stock price has been undervalued.
- Recently, S decided to suspend the company’s dividend. Before that, the dividend yield was about 10% and then jumped up to 33% in the third quarter of 2014, which was the last quarter they paid dividend. We as the financial analysts are positive about the company’s effort to fill its funding gap by cutting the dividend which allowed it to retain 2 billion/year. S spent the 2Billion on the acquisition of West Vella Drillship on November 4th, 2014. Operating income for the quarter was $168.9 million compared to $153.6 million in the preceding quarter. The increase is large as a result of operational improvements from the acquisition of the West Vela on November 4, 2014.
- According to seadrill’s annual reports, its revenue has modestly increased from 4b in 2010 to 5.2b in 2013 In 2014, the rev decreased slightly to 4.99B where the main reason would be the oil tumbling explained above.
- However, the rev doesn’t reflect much about the current situation of the company. Right here ,We can see how the NI has been growing significantly from 1b in 2010 to more than 4B in 2014. The company did a good job reducing cost. They suspended dividend in the 4th quarter 2014 and they have been using that cast amount quite wisely to reduce the debt and the interest payments. As a result of the NI increase, the EPS of the company increased from 2.34$ to 5.47 in 2013 and to 8.23 in 2014. Profit margin of Seadrill is 81.88% compare to 8.2% of the industry, the company is doing a good job operating and selling oil. In addition to the backlogs, we believe that the clients of seadrill are putting more and more confidence into the company’s future.
- If we take a look at the PE ratio in the chart, it is clearly pointing now is the time to buy Seadrill stocks. A drop in the ratio than the industry average suggests Seadrill stocks are undervalued. Our team is confident that Seadrill stocks represent the first half of the ‘buy low, sell high’ equation. Again, the return on equity reinstates this is an investment to be made. The 15.5% return on asset indicates the value of Seadrill’s assets or the company’s engine compared to the industry average of 4.1%.
- As you can notice in the graph, cash flow for the year 2013 was substantially higher than that of 2014. Let us not forget that the level of cash flow does not necessarily translate to the performance of the company or the company’s growth prospect. Seadrill has strong ambitions to expand heading into 2015. A portion of the return on investment is also being reinvested back into the company to build oil rigs in new locations to further increase the oil and gas production volumes. To further explain the level of cash flow in 2014 compared to 2013, dividends equating up to 30% of the market share price of Seadrill were paid to the stockholders in the first 3 quarters of 2014.
- SeaDrill just releases its fourth quarter report on February 26, 2015. The company was able to sign 5 contract just in the last quarter of 2014, which is a promising future for SeaDrill’s production. At the end of last year, the company performance was better than the analysts had expected. According to Yahoo Finance, the Earning per share is $0.72 compared to the consensus estimate of $0.63, and the Earning before interest, tax, Apparently, Morgan Stanley in particular and analysts in general had undervalued the performance of this oil and gas company. However, they were positive on Seadrill’s efforts to fill its funding gap by cutting the dividend as we mentioned earlier in our presentation. This movement will retain $2 billion per year. All in all, there are three reasons why any investors should purchase this stock First of all, the current stock price is obviously undervalued. It has been tumbled more significantly than it should be. The low P/E ratio implies that it is a cheap stock to buy with the strong expectation to rise in the future because its forward P/E is 4.4 Lastly, the backlog contract worth 1.3 billion indicates an increase in upcoming sales and more importantly, an expected rising in Seadrill client’s interest.
- Seadrill is expected to grow remarkably this year. We believe March 2015 is the bottom of the energy crisis, and after that, the energy sector including Seadrill will be back on the track with the oil price increasing. We estimate the stock price of Seadrill will reach between $19 and $21 per share in this 12-month investment term. This will bring the estimate 80% of the return for this investment.