Noble: Quantifying NE's compelling risk/reward profile; target raised to $50 at FBR Capital (36.19 )
FBR notes NE offers a compelling risk/reward profile that cannot be passed up. In response to several investor inquiries, it has attempted to quantify the potential value that could be unlocked from a spin-off of non-core assets. FBR remains convinced that this is a 2013 event, based on its numerous conversations with NE mgmt. FBR's scenario analysis has cemented its belief that NE is the top way to play offshore drillers in 2013.
"Spinco. Our analysis assumes Noble spins off 21 older jackups, six floaters, and three other rigs. These rigs account for roughly 12% of our published 2014 EBITDA estimate, and we then apply a 4.6x 2014 EBITDA multiple. This represents the median multiple for Hercules Offshore's multiple, which has much-lower-spec jackup assets, and Rowan's multiple, which has more premium rigs."
"Noble parent valuation. With respect to the remaining parent company, we believe it should trade similarly to higher-spec deepwater leveraged offshore drillers. Accordingly, we use a 7.1x 2014 EBITDA multiple, which is equal to the median multiple for Atwood Oceanics (NYSE: ATW), Seadrill (NASDAQ: SDRL), Ensco PLC (NYSE: ESV), and Ocean RIG (NASDAQ: ORIG)."
I'm biting...in addition to the short puts over April and May, I purchased some shares this morning with proceeds from my LNG that got called away over the weekend (bit of a heart break there...). I may cover with calls or buy back the puts if we move much higher...but I'm learning my lesson on selling calls: don't do it too early or too often.