Ensco (ESV) CFO to Retire, Search on For Replacement - Analyst Blog
Ensco plc ESV has announced that executive vice president cum chief financial officer (CFO) Jay Swent is about to retire. The company veteran with an eleven-year stint will continue to hold on the posts until the succession process is completed and a new CFO is named. The company expects the completion of the succession process to stretch to the first half of 2016.
Ensco − a leading supplier of offshore contract drilling services to the oil and gas industry − remains well positioned to improve its earnings and revenues in the foreseeable future. It is also likely to benefit from a recovery in oil-directed drilling.
Having transformed from a Gulf of Mexico (GoM) company to a relatively pure international play, Ensco should be well positioned to improve its earnings and revenues in the foreseeable future, as well as benefit from a recovery in oil-directed drilling. However, the markets look weak for the near term. Nevertheless, Ensco's efforts should eventually be accretive to its earnings.
The last few years saw an upgrade of several Ensco rigs. The upgrade project of ENSCO DS-1 is complete, while ENSCO 5005, ENSCO 5006, ENSCO DS-2, ENSCO 6001 and ENSCO 6002, are undergoing modernization. Almost 55% of the jackups completed upgrades in 2012–2013, however, in 2014–2015 fewer jackup upgrades are expected. This is a positive for the company as it would improve utilization and boost operating margins.
Ensco has a contracted revenue backlog (excluding bonus opportunities) of $11 billion, which provides it with an excellent cash flow visibility. With the completion of the construction of its eight additional rigs – scheduled to be delivered by the end of 2015 – and the two recently ordered 140 series jackups, Ensco is expected to experience significant growth.
Ensco’s impressive balance sheet and sufficient liquidity help it to address any operational or corporate need. At the end of the first quarter of 2015, Ensco had $887.8 million in cash and cash equivalents. Long-term debt (including current maturities) was $5,919.3 million, while debt-to-capitalization ratio came in at 31.0%. With a current dividend yield of 2.24%, we believe Ensco can comfortably increase its dividend in the future amid manageable debt.
However, Ensco is expected to have increased downtime in 2015, mainly on account of its five 8500 series rigs rolling off contract in the first half. This will affect its utilization rates in the coming quarters and thus, lower revenues. Further, the challenges arising from contracting rigs for extension in Brazil are concerns.
As crude continues to display bearish trends and revolves around the $50-a-barrel level, the top energy companies have resorted to spending cuts (particularly on the costly upstream projects) on the back of lower profit margins. This, in turn, means less work for drilling contractors like Ensco.
Ensco currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the oil and gas sector are Enbridge Energy Partners L.P. EEP, EQT Midstream Partners L.P. EQM and Cheniere Energy, Inc. LNG. All of these stocks sport a Zacks Rank #1 (Strong Buy) and would offer above-average returns to investors.
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