John Goik John Glankler Christian Töpfner von Schütz
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Transcript of John Goik John Glankler Christian Töpfner von Schütz
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John GoikJohn GlanklerChristian Töpfner von Schütz
John GoikJohn GlanklerChristian Töpfner von Schütz
Energy SectorStock Recommendation
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Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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Energy Sector - Review
Industry to overweightOil & Gas DrillingIntegrated Oil & Gas
Industry to underweightOil & Gas Storage &
Transportation Refining & Manufacturing
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Energy Sector - Review
Sector S&P 500 Weight SIM Weight +/-
Consumer Discretionary 9.11% 7.19% -1.92%
Consumer Staples 11.81% 11.65% -0.16%
Energy 12.04% 10.74% -1.31%
Financials 13.86% 8.93% -4.93%
Health Care 13.73% 13.30% -0.43%
Industrials 9.98% 12.37% 2.39%
Information Technology 18.72% 20.41% 1.69%
Materials 3.40% 4.98% 1.58%
Telecommunication Services 3.41% 3.39% -0.02%
Utilities 3.94% 3.61% -0.34%
Cash 0.00% 3.38% 3.38%
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Energy Sector - Review Short Term:
High InventoriesDemand down by 3.2 mb/d 2Q 2009 Demand down by 2.2 mb/d 3Q 2009 Demand expected to rise again by 1.4 mb/d 1Q 2010 to 85.9 mb/d Strong oil price reaction to signs of economic recovery
Long Term:
Structural capacity issues Production capacity likely to decline (weak price environment) Utilization at 100% by 2013 Demand limited by flat supply capacity Morgan Stanley oil price predictions: $85 for 2010, $95 for 2011
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Energy Sector - ReviewIncrease weight of Energy sector by 131 basis pointsto par with S&P 500 :
Sector is undervalued and has mid to long-term growth potential Current weakness should be used to add stock in this sector Waiting until the next SIM trading window in Nov/Dec 09 could be
too long since stocks will most likely move quickly on positive news
Positives: Economic recovery (especially in China and India) Expected rise in oil prices (mid to long-term) Structural problems on the supply side (mid to long-term)
Risks: High inventory/low demand in short term Overall uncertainty in oil price predictions
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Energy Sector - Proposal
Security Current Weight Buy Sell New Weight
BP plc 4.09% 0.31% 0.00% 4.40%
ConocoPhillips 3.11% 0.00% 0.00% 3.11%
Transocean Ltd 3.54% 1.00% 0.00% 4.54%
Hess 0.00% 0.00% 0.00% 0.00%
Total 10.74% 1.31% 0.00% 12.05%
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Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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BP – DCF ValuationDCF Valuation
4/24/2009
BP Terminal Discount Rate = 12.0%
John Glankler Terminal FCF Growth = 3.0%
Forecast
Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
Revenue 385,405 404,675 424,909 437,656 450,786 464,309 478,238 492,585 507,363 522,584 538,261
% Growth 5.00% 5.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Operating Income 75,291 87,996 102,846 56,895 58,602 60,360 62,171 64,036 65,957 67,936 69,974
Operating Margin 19.54% 21.74% 24.20% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00%
Taxes 14,966 17,753 21,058 11,478 11,823 12,177 12,543 12,919 13,307 13,706 14,117
Tax Rate 19.6% 19.9% 20.2% 20.2% 20.2% 20.2% 20.2% 20.2% 20.2% 20.2% 20.2%
Minority Interest - - - - - - - - - - -
Net Income 60,325 70,244 81,788 45,417 46,779 48,183 49,628 51,117 52,651 54,230 55,857
% Growth 16% 16% -44% 3% 3% 3% 3% 3% 3% 3%
Add Depreciation/Amort 10,985 11,534 12,111 12,474 12,849 13,234 13,631 14,040 14,461 14,895 15,342
% of Sales 2.85% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%
CapEx 30832 32374 33993 35012 36063 37145 38259 39407 40589 41807 43061
Free Cash Flow 40,477 49,404 59,906 22,879 23,565 24,272 25,000 25,750 26,523 27,318 28,138
YOY growth 22% 21% -62% 3% 3% 3% 3% 3% 3% 3%
Current Price $51.20
Implied equity value/share $94.40
Upside to DCF 84.40%
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BP – Multiples Valuation
Average Target Price for Multiples Valuation: $74.94
Final Average Target Price for BP: 80% DCF weight and 20% Multiples = $91.51 76.78% Upside Correlation to oil price: r = 0.70
Absolute Valuation
High Low Median Current#Your Target Multiple
*Your Target E, S, B, etc/Share
Your Target Price (F x G)
P/Forward E 14.4 4.7 10.3 10.3 8.0 9.19 73.52
P/S 1.1 0.0 0.8 0.6 0.6 117.65 70.59
P/B 3.3 1.4 2.7 1.7 2.0 59.67 119.34
P/EBITDA 8.12 2.86 5.71 4.01 4.1 9.27 38.01
P/CF 9.7 3.3 7.6 5.7 6.0 12.21 73.26
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ConocoPhillips – DCF ValuationDCF Valuation
7/13/2009
Ticker: COP Terminal Discount Rate = 11.5%
John Glankler Terminal FCF Growth = 4.0%
In Millions($)
Forecast
Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
Revenue 180,632 180,632 198,695 214,590 231,757 250,298 270,322 291,948 315,303 340,528 367,770
% Growth 0.00% 10.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Operating Income 6,851 8,658 10,020 12,875 13,905 15,018 16,219 17,517 18,918 20,432 22,066
Operating Margin 3.79% 4.79% 5.04% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Interest and Other- net 5,740 5,603 5,470 4,292 4,635 5,006 5,406 5,839 6,306 6,811 7,355
Interest % of Sales 3.18% 3.10% 2.75% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Taxes 5,334 4,827 4,170 5,810 6,275 6,777 7,319 7,905 8,537 9,220 9,958
Tax Rate 33.8% 33.8% 33.8% 33.8% 33.8% 33.8% 33.8% 33.8% 33.8% 33.8% 33.8%
Minority Interest - - - - - - - - - - -
Net Income 8,151 9,434 10,426 11,357 12,265 13,247 14,306 15,451 16,687 18,022 19,464
% Growth 16% 11% 9% 8% 8% 8% 8% 8% 8% 8%
Add Depreciation/Amort 6,759 6,759 7,435 8,030 8,672 9,366 10,115 10,924 11,798 12,742 13,761
% of Sales 3.74% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7%
Plus/(minus) Changes WC 1,538 0 (2,954) (2,682) (2,897) (3,129) (3,379) (3,649) (3,941) (4,257) (4,597)
% of Sales 0.85% 0.00% -1.49% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25%
Subtract Cap Ex 13,084 13,084 14,393 10,730 11,588 12,515 13,516 14,597 15,765 17,026 18,388
Capex % of sales 7.24% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Free Cash Flow 3,364 3,109 514 5,975 6,453 6,969 7,526 8,129 8,779 9,481 10,240
YOY growth -8% -83% 1063% 8% 8% 8% 8% 8% 8% 8%
Current Price $44.22
Implied equity value/share $48.20
Upside to DCF 9.00%
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ConocoPhillips – Multiples Valuation
Average Target Price for Multiples Valuation: $52.21
Final Average Target Price for COP: 80% DCF weight and 20% Multiples = $49.00 10.81% Upside Correlation to oil price: r = 0.94
Absolute Valuation
High Low Median Current#Your Target Multiple
*Your Target E, S, B, etc/Share
Your Target Price (F x G)
P/Forward E 11.3 5.3 8.0 9.7 9.0 3.75 33.75
P/S 0.9 0.2 0.6 0.3 0.7 106.25 74.38
P/B 2.3 .8 1.5 1.1 1.4 37.19 52.07
P/EBITDA 12.44 2.58 3.91 3.98 5 7.25 36.25
P/CF 8.2 2.3 5.4 2.9 5.4 11.96 64.58
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COP - Recommendation
Hold:
Some upside potential, but not enough to add to current position
Should profit from increasing oil priceReview position next quarter and potentially
replace if upside potential has been exhausted
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Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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Transocean (RIG)
Industry: Oil & Gas Drilling and ExplorationCompany: Provides offshore contract drilling
services for oil and gas wells worldwideMarket Cap: $24.07 Billion (08/09/2009)
Makes up 33% of SIM Energy Sector and 3.54% of Total Assets in the SIM portfolio7,670 sharesCost Basis: $71.50Current Price: $75.06 (08/09/2009)
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RIG – Business Analysis
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RIG – Business Analysis
CompetitionHigh cost, small number of similar companies
Diversity of LocationChina, India
Strong Ultra Deepwater MarketDeep water is where major new oil finds are most
likelyContract with Petrobras (Brazil)
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RIG – Financial Analysis
S&P projects earnings of Oil and Gas Drillers to grow at 22% annually over the next 5 years
Strong contract backlog of $33.7B
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RIG – Financial Analysis
$900M in cashBuyback shares or pay down debt
2Q 2009 EPS $2.79 below analyst estimates of $3.02“Operational Incident” - $30MSwap of Legend and Sedco 703 rigs - $22m
4% drop in stock priceMarket overreaction?
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RIG – DCF ValuationDCF Valuation8/10/2009Ticker: RIG Terminal Discount Rate = 12.0%John Goik Terminal FCF Growth = 4.0%
ForecastYear 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
Revenue 12,040 12,642 13,274 14,204 15,198 16,110 17,076 18,101 19,187 20,146 21,053 % Growth 5.00% 5.00% 7.00% 7.00% 6.00% 6.00% 6.00% 6.00% 5.00% 4.50%
Operating Income 5,575 5,373 5,509 5,681 6,079 5,638 5,977 5,430 5,756 5,037 5,263 Operating Margin 46.30% 42.50% 41.50% 40.00% 40.00% 35.00% 35.00% 30.00% 30.00% 25.00% 25.00%
Interest Income 25 32 28 43 53 64 77 81 96 111 137 Interest % of Sales 0.21% 0.25% 0.21% 0.30% 0.35% 0.40% 0.45% 0.45% 0.50% 0.55% 0.65%
Interest Expense (470) (329) (319) (355) (380) (483) (512) (543) (576) (604) (632) Interest % of Sales -3.90% -2.60% -2.40% -2.50% -2.50% -3.00% -3.00% -3.00% -3.00% -3.00% -3.00%
Losses on Retirement of Debt (12) 0 (40) (43) (46) (48) (51) (54) (58) (60) (63) % of Sales -0.10% 0.00% -0.30% -0.30% -0.30% -0.30% -0.30% -0.30% -0.30% -0.30% -0.30%
Other, net 120 63 66 142 152 242 256 362 384 403 421 % of Sales 1.00% 0.50% 0.50% 1.00% 1.00% 1.50% 1.50% 2.00% 2.00% 2.00% 2.00%
Taxes 1105 1084 1106 1153 1236 1142 1212 1113 1182 1030 1081 Tax Rate 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1%Minority Interest (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2)
Net Income 4,136 4,057 4,140 4,317 4,625 4,273 4,536 4,166 4,423 3,857 4,047 % Growth -2% 2% 4% 7% -8% 6% -8% 6% -13% 5%
Add Depreciation/Amort 709 745 782 837 895 949 1,006 1,066 1,130 1,187 1,240 % of Sales 5.89% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9%Plus/(minus) Changes WC 97 (93) (97) (170) (182) (193) (205) (217) (230) (242) (253) % of Sales 0.81% -0.73% -0.73% -1.20% -1.20% -1.20% -1.20% -1.20% -1.20% -1.20% -1.20%Subtract Cap Ex 3,973 3,161 2,920 2,131 1,824 1,289 1,025 1,086 1,151 1,209 1,263 Capex % of sales 33.00% 25.00% 22.00% 15.00% 12.00% 8.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Free Cash Flow 969 1,549 1,905 2,853 3,514 3,740 4,313 3,929 4,172 3,593 3,771 YOY growth 60% 23% 50% 23% 6% 15% -9% 6% -14% 5%
Current Price $75.06
Implied equity value/share $103.52
Upside to DCF 37.92%
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RIG – DCF ValuationAverage Operating Margin is 41.30%
Too High?
Average Target Price for DCF Valuation:30% Weighting towards low end margin60% Weighting towards middle margin10% Weighting towards continuing trend on high
end Result = Average Price $110.69
Avg. Operating Margin 2009-2019 31.85% 35.48% 41.30%2019 Margin 20.00% 25.00% 38.00%
Upside to DCF 12.40% 37.90% 92.04%
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RIG – Multiples Valuation
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RIG – Multiples Valuation
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RIG – Multiples Valuation
Average Target Price for Multiples Valuation: $156.87
Final Average Target Price for RIG: 80% DCF weight and 20% Multiples = $119.93 59.78% Upside Correlation to oil price: r = 0.93
Absolute Valuation
High Low Median CurrentTarget
Multiple
Target E, S, B,
etc/Share
Target Price
P/Forward E 49.0 3.1 12.3 6.3 9.3 12.88 119.78P/S 9.4 1.3 6.8 1.9 4.5 37.51 168.80P/B 4.7 0.9 2.8 1.3 2.0 57.74 115.48P/EBITDA 22.29 2.44 15.32 3.73 10.0 20.12 201.20P/CF 33.8 2.8 17.6 4.7 11.1 15.97 177.27
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RIG - Recommendation
Buy 100 bps of RIGStrong business positionFavorable valuationsIncrease in price of oilWeakening value of dollar
RisksDecline in oil priceStronger dollar
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Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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Energy Sector - Summary
Security Current Weight Buy Sell New Weight
BP plc 4.09% 0.31% 0.00% 4.40%
ConocoPhillips 3.11% 0.00% 0.00% 3.11%
Transocean Ltd 3.54% 1.00% 0.00% 4.54%
Hess 0.00% 0.00% 0.00% 0.00%
Total 10.74% 1.31% 0.00% 12.05%
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What Questions Do You Have?
Energy Sector - Stock Recommendation
What Questions Do You Have?