Friday, July 24, 2015

Analysis of Ensco


Ensco, a British oil and gas offshore service company

Company: Ensco

ISIN GB00B4VLR192 | WKN A1JYNN 

Business: A British oil and gas service company. Their services offered is offshore drilling for the petroleum industry and are the second largest in the world. They have a fleet of: 9 drillships including 1 under construction, 11 dynamically-positioned semisubmersibles, 3 moored semisubmersibles, 40 premium jackups including 3 under construction, 2 deepwater and 3 shallow-water managed units. They have around 7 rigs for sale, 13 are cold stacked (to decrease maintenance costs) and 8 are available without customer.

Active: On six continents!

P/E: -1.1 (also P/E5 becomes negative)

Comment: The dividend might look good but they have cut the quarter payments from 0.75 USD to 0.15 USD which gives a yield around 3.2% if they continue like that. In 2014 they depreciated their assets by -4.2 billion USD and they took a cost of -1.2 billion USD for non continued operations. They have almost no goodwill left in their books now. Without these two they would have had an acceptable profit in 2014 and Q1 2015 looked ok so even with so much of the fleet out of business they still seem to make a profit. They have the right to buy back shares for 2 billion USD and they can issue up to 450 million shares right now 271 millions are issued. Looks as if the managers can fool around a little as they please.


This company was analysed due to a request from Matthias posted on the Analysis Requests page.

contrarian values of P/E, P/B, ROE as well as dividend for Ensco

The P/E of Ensco is awful with -1.1 due to losses but the P/B is excellent with 0.5 especially considering their asset write down in 2014. Still Graham would not find this company of interest. The earnings to sales makes no sense and neither does the ROE. The book to debt ratio is very good with 1.1.
In the last five years they have had a yearly revenue growth rate of 21.9% which is excellent but doped due to very poor result in 2010 and for the last three years the revenue has been pretty flat with +-10%. We end up with a motivated P/E of 30 to 50 which I do not consider to be true.
They paid an excellent dividend of 16.2% and they were flirting with their shareholders for the last couple of years with high dividends but the flirting seems to have stopped with a significant dividend cut.

Conclusion: Graham says no to Ensco and I am more positive. Sure the dividend has been cut which is seriously bad but the level is still acceptable with around 3.2% and the P/B is good. What I hope is that the massive impairment cost that they took in 2014 will be enough for the next couple of years and of course that the oil price will keep increasing... if both of those turns out wrong then Ensco will have a difficult time also in the future with even more impairment costs to follow. Hmmm... I need to think about this one.

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