BNP Paribas upgrades Aban Offshore from `Hold’ to `Buy’ and raises its target price from Rs 1,500 to Rs 1,561. We do not anticipate significant downside from current levels as Aban has strong cash flow and predictable earnings. The management expects the four idle rigs to be chartered in the near term as it is in final talks with prospective E&P companies .
The global jack-up market seems to have bottomed out; however, the pace of recovery will be slow due to the supply pressure. Current jack-up contracts are being signed at about $125,000/day, easing concerns on negative day rate surprise. BNP has raised the FY11E EPS by about 12% as they raise the EBITDA margin assumption for FY11 to 60%.
While BNP expects q-o-q improvement in earnings driven by the Middle Eastern rigs contracts, they note that Tahara (FPU) and Aban Pearl were idle during the quarter, resulting in six vessels remaining idle for the quarter. For Q3FY10,. At the current market price, BNP has factored in a four-month delay from end-Q 3FY10.
If the Crude price stabilises around $75, going forward we may see recovery in that upto the levels of $110. This will augur well for Aban as the day rates for its rigs would jump from current levels. Aban has total 20 rigs & 1 floating unit.
