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SeaDrill Limited Message Board

  • ferdinand_20102 ferdinand_20102 Oct 28, 2010 12:04 PM Flag

    SDRL overvalued

    I have suspected that this stock is overvalued because of the high EV/EBITDA numbers compared to peers. One of the reasons why the company is getting so many favourable recommendations from investment banking companies is because they want the M&A business Seadrill can offer. The company is wellrun no doubt but it just doesn't justify the valuation.

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    • Turns out there are TWO Nobles. NE and NBL. Both drill in the gulf. And NBL's name is Noble Energy, and their logo is NE. Confused yet?

    • Seadrill is not overvalued if you bought it at the right price.
      Some owners bought in the twenties or lower and are collecting 10% dividends or even better.
      The Gulf disaster created an opening for me.
      Seadrill is not for the faint of heart that is for sure.

    • divi, great points made and ALL of JF's rigs have contracts ex-yard so they are earning cash from day one...Unlike the buffoon over at Drys that had to sweat bullets and then take LowBall Loyd contracts just to employ his rigs that he massively overpaid for...I'll ride on JF's coat-tales and pick up a crumb or two that's left behind, they are golden!

    • Not sure what the worry is here.
      Debt payments are more than covered by established contracts, and cash flow is growing (forecasted basis). Even if your supposition is correct (and it appears so), that dividends are partially paid out of the next six months cash flow instead of past six months, what does this matter in a high cash flow growth company?
      SDRL high valuations are justified by the high growth, high cash flow expectations of the market, plus the most modern fleet in the business. Not to mention the fact that JF is confirmed dividend payer. High growth, most modern fleet, returns cash to shareholders - name a competitor that compares. Sometimes the strategic investment metrics have to go beyond just the beans and ratios.

      If the 350 debt installment is from a borrowing made toward funding the recently delivered Orion and Gemini, then there is not much of a cash flow timing difference or worry here.

    • I do not see anything regarding refinancing in the statement. SDRL has about 9billion in loans. Debt innstallment of about 350MUSD for first 6 months does not seem like a large amount. In addition new debt is equal about the same amount as new building/equipement investments.Do you have any information regarding this Mark?

    • The accounting calculations need an additional adjustment. Rather than subtract the full amount of debt payment you should actually only subtrace net debt payment. That is a company may show $450 million in debt payments however under financing the company may have borrowed, i.e., refinanced, $350 million so the real reduction is only a $100 million paydown against debt. In other words money raised via financing is available to be spent.

      -- Mark --

    • I have just been glancing at the stock. I guess I need to look deeper. According to Motley Fool they have a .84 coverage of the dividend.

      So I would have to agree with you. The stock is to high and so is the dividend.

    • Total debt-to-equity is a BIG red flag.

    • Ferd. Q1 was the only quarter I remember SDRL having a payout ratio of over 100%. If you read that quarterly report there was a one time loss that hurt earnings.

      Also, the 1st half earnings do not include the 2 new deepwater units West Gemini and West Oriorn, which I think are both now in operation. This increased the deepwater fleet by over 18%. Also, 5 other units are scheduled for H2 2010.

      Take a look at the most recent presentation:

    • As originally stated, double check yahoo #. You can cherrypick a timeframe but as a whole, based on this yr's earnings we're running about 85% and forward 12 months 75%. High but normal for an investor friendly company or a company with high insider ownership as a means of paying themselves and the shareholder.
      Don't disagree SDRL is at the top end of my personnal valuation but the future is unusually bright especially in comparison to the industry's household names. SDRL et al will trade with oil pricing for now unlike when I took my first and second positions when it was grossly undervalued in sympathy with the GOM crisis.
      In any case, GL.

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