John Goik John Glankler Christian Töpfner von Schütz
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Transcript of John Goik John Glankler Christian Töpfner von Schütz
John GoikJohn GlanklerChristian Töpfner von Schütz
John GoikJohn GlanklerChristian Töpfner von Schütz
Energy SectorStock Recommendation
Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
Energy Sector - Review
Industry to overweightOil & Gas DrillingIntegrated Oil & Gas
Industry to underweightOil & Gas Storage &
Transportation Refining & Manufacturing
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%
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
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
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%
Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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%
BP – Multiples Valuation
Average Target Price for Multiples Valuation: $74.94
Final Average Target Price for BP: 80% DCF weight and 20% Multiples = $91.51 76.78% Upside Correlation to oil price: r = 0.70
Absolute Valuation
High Low Median Current#Your Target Multiple
*Your Target E, S, B, etc/Share
Your Target Price (F x G)
P/Forward E 14.4 4.7 10.3 10.3 8.0 9.19 73.52
P/S 1.1 0.0 0.8 0.6 0.6 117.65 70.59
P/B 3.3 1.4 2.7 1.7 2.0 59.67 119.34
P/EBITDA 8.12 2.86 5.71 4.01 4.1 9.27 38.01
P/CF 9.7 3.3 7.6 5.7 6.0 12.21 73.26
ConocoPhillips – DCF ValuationDCF Valuation
7/13/2009
Ticker: COP Terminal Discount Rate = 11.5%
John Glankler Terminal FCF Growth = 4.0%
In Millions($)
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%
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
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
Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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)
RIG – Business Analysis
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)
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
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?
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%
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%
RIG – Multiples Valuation
RIG – Multiples Valuation
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
RIG - Recommendation
Buy 100 bps of RIGStrong business positionFavorable valuationsIncrease in price of oilWeakening value of dollar
RisksDecline in oil priceStronger dollar
Agenda
• Energy Sector – Review and Proposal• BP & ConocoPhillips• Transocean Ltd. (RIG) • Summary
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%
What Questions Do You Have?
Energy Sector - Stock Recommendation
What Questions Do You Have?