“We believe that comparing ADNOC Drilling to ADES is fair, with appropriate caveats,” Brooks said
deal with the Abu Dhabi National Oil Company’s (ADNOC) drilling unit points to a very significant upside for London-listed (), that’s according to stockbroker , which has repeated its ‘buy’ recommendation.
Yesterday’s agreed to pay $550mln for a 5% stake in ADNOC Drilling, valuing the whole business at around $11bn.
Canaccord analyst Alex Brooks, in a note, highlighted that ADES is due to complete its deal to acquire rigs from Weatherford in the fourth quarter and after that, he says, the company’s fleet will similar to that of ADNOC Drilling.
“We believe that comparing ADNOC Drilling to ADES is fair, with appropriate caveats,” Brooks said.
“ADNOC Drilling is being valued by BHI – one of the leading companies in the oil industry – at around ten times the current enterprise value of ADES.
“By simple number of rigs, ADES is one-half the size of ADNOC Drilling; taking into account capability, ADES has perhaps one-quarter the capability. This still leaves a large valuation gap, and helps to underscore our continued bullishness on ADES.”
Describing ADES, the analyst added: “this is a low cost, high margin drilling business that is able to create value through operating drilling rigs at far lower costs than its industrial peers, but has at least as good safety & operating performance, and has an expansion strategy that centres on adding rigs with a proven track record and secure backlog.”
Canaccord’s ‘buy’ recommendation comes with a $22.00 per share price target, suggesting some 70% upside to the current price.
“At the current price, ADES is trading at less than 6.5x 19E EV/EBITDA, i.e. under half its industrial peers – a rating which we struggle to understand or justify,” Brooks said.
“The next trigger is the likely completion of the Weatherford acquisition.”
Weatherford deal to double ADES fleet
In July, ADES announced the $288mln deal to acquire 31 onshore drilling rigs located in North Africa and the Middle East from Weatherford International.
The deal doubles ADES operational drill fleet and includes contracts, management systems and approximately 2,300 staff throughout Algeria, Kuwait and Saudi Arabia.
At present, twenty of the rigs are under contract with the rest to be used as inventory and for tenders. Revenues from the Weatherford rigs are expected to be US$150mln a year and they will add US$750mln to ADES’ order backlog.
The purchase price is US$287.5mln to be paid through cash and debt facilities.