Review Credit Research 15 July 2016

Transcription

1 Review Credit Research 5 July 26 Fred Olsen Energy Industry (GICS): Energy Equipment & Services Sector (Nordea): Oil Services CCC+ Negative Key info Country Bloomberg debt Bloomberg equity Moody's S&P Market cap. (bn) Norway FOENO Corp FOE NO NR/n.a. NR/n.a. USD.6/NOK.38 Nordea Markets - Analysts Kristoffer B. Pedersen Analyst kristoffer.b.pedersen@nordea.com Lars Kirkeby Chief analyst, Credit lars.kirkeby@nordea.com Contract coverage days Contract coverage (days) % 9% 8% 7% 6% 5% 4% 3% 2% % % 6% 7% 22% 26E 27E 28E Contract coverage (excl. options) Option coverage Bond price development Bond Price Jan 4 Apr 4 Jul 4 Oct 4 Jan 5 Apr 5 Jul 5 Oct 5 Jan 6 Apr 6 FOE4 FOE5 Source: OSE and Nordea Markets 5% Contract cancellation adds further misery Fred Olsen reported Q2 operating results slightly above expectations, but this was overshadowed by the contract cancellation for Borgland Dolphin, which reduces the EBITDA backlog by USD ~6m. The company has a relatively solid cash buffer, ensuring sufficient liquidity until early 29. Given its old fleet and evaporating backlog, however, the majority of its fleet may be forced out of the market during this downturn and leverage will likely increase to unsustainable levels. We lower our shadow rating to CCC+ with a Negative outlook. We find the bonds expensive at the current levels, so we still recommend that investors sell the bonds. Borgland contract cancelled, Borgny to be scrapped Borgland Dolphin, currently operating under an 8-well contract with a Rig Management Norway consortium, has had the duration of its drilling contract reduced from March 27 to August 26. Fred Olsen Energy says it will explore its legal rights to recover some of the reduced income. If it does not recover any of the lost revenue, we estimate an EBITDA loss of USD ~6m (given six months of revenue loss and assumed utilisation of 95%). We highlight further backlog risk relating to the Borgsten Dolphin contract, which could wipe USD ~35m from EBITDA should Total exercise its right to terminate by year-end. Covenant breach likely to trigger a restructuring in 27/8 On our estimates, Fred Olsen Energy has sufficient liquidity until Q 29 (assuming no drawdown on the RCF). If it does not recoup the USD 86m initial instalment for Bollsta Dolphin, it still has sufficient liquidity until Q 28. However, it will likely breach the leverage ratio and interest coverage ratio covenants in 27-8 and the minimum value clauses in the bank agreements may be breached before then. Expensive bonds Given the high risk that the majority of its fleet may be forced out of the market, we find the bonds expensive. If Bolette Dolphin is its only rig to survive this downturn, the implied valuation at current bond prices is USD ~36m (adjusted for the backlog), which we find expensive relative to other drilling bonds and to secondhand values for UDWs. Key credit metrics and ratios (adjusted numbers) 29 2 EBITDA % 57% EBIT % 36% Shareholders' equity 93,47 Debt,7 Debt/(Debt+Equity).5.4 FFO/Debt 52.3% 57.3% FOCF/Debt % 26.9% DCF/Debt 5.9% 5.% EBITDA interest coverage Debt/EBITDA.7.6 ROC 2.3% 7.9% 2 55% 44 35%,423, % 3.3% 8.3% % % 32%, % 2.% -5.7% % 23 48% 33 28%, % 35.9% 7.5% % % 44 %,38, % -37.5% -52.8% % 25 57% -29% 6, % % 26E 62 8% - -2% 89, % % 27E 37% % %.8%.8% % 28E 6% % % % IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets

2 Fred Olsen Energy 5 July 26 Fleet overview Contract overview No. Type Rig Built Yard/Client Region Q'6 Q2'6 Q3'6 Q4'6 Q'7 Q2'7 Q3'7 Q4'7 Q'8 Q2'8 Q3'8 Q4'8 Ft. 2G SS HE Borgsten Dolphin 975 Total UK $66',5 2 Borgny Dolphin 977 Cold stacked UK,75 3 Byford Dolphin 9 BP UK $346',5 4 3G SS HE Bredford Dolphin 976 Cold stacked Norway $395',5 5 4G SS HE Bideford Dolphin 975 Statoil Norway $424' $34' $426',75 6 Borgland Dolphin 977 Consortium Norway $473' $475',5 7 5G SS Blackford Dolphin 9 Chevron UK $428' 6, 8 DS UDW Belford Dolphin 2 Layup Malaysia $288', 9 DS 7G UDW Bolette Dolphin 23 Anadarko Ivory Coast $488', Accomodation Borgholm Dolphin 975 Cold stacked UK $' Yard Contract Option Nordea Markets 2

3 Fred Olsen Energy 5 July 26 Reported numbers and forecasts Income statement Total revenue -growth Gross profit EBITDA EBITA EBIT Net finance Pre-tax profit Taxes Net profit, continuing operations Discontinued operations Net profit to equity 29,5 2.3% 6 64.% % % % % % % % % ,54 5.9% % 54.7% % % ,8 2.4% % % % % ,94.% 47.9% 47.9% % % ,84 -.9% 56 4% 56 4% 44.2% 44.2% ,6-5.7% 57.% 57.% -29.% -29.% E % % % % - -.5% E 34-6.% 36.9% 36.9% % % E % 5.9% 5.9% % % EBITDA (credit adj) EBIT (credit adj) Interest expense (credit adj) Balance Sheet Goodwill Other intangibles Tangible assets Shares associates Interest bearing assets Deferred tax assets Other non-interest bearing non-current assets Other non-current assets Non-current assets 29 6,58 8 8,63 2 6,673 7,6 2 8,864, , , , , ,92 3 2,946 25,862 23,897 26E,48 79,45 27E,43 79, 28E Inventory Accounts receivable Other current assets Cash and cash equivalents Current assets Assets held for sale Total assets 2,28 2,237 2,65 2,859 3,66 3,469 2, 2,,685,83 Shareholders equity Minority interest 93,47,423,366,437, Deferred tax Convertible debt Long term interest bearing debt Non-current liabilities Pension provisions Other long-term provisions Other long-term liabilities Non-current liabilities ,36 39,499,2, Short-term provisions Accounts payable Other current liabilities Short term interest bearing debt Current liabilities Liabilities for assets held for sale Total liabilities and equity , , , , , , , , , ,83 Cash and cash eq (credit adj) Total assets (credit adj) Shareholders equity (credit adj) Debt (credit adj) 32 2,28 93, ,237, ,65,423, ,859, ,66, ,469,38, , 6, , 89,7 36, , Nordea Markets 3

4 Fred Olsen Energy 5 July 26 Cash flow statement EBITDA Adj due to change in group structure Change in Provisions Other non-cash adjustments Net financials Dividends received Paid taxes Other Operating cash flow before NWC Change in NWC Operating cash flow CAPEX Free Operating cash flow Dividends paid Share issues / buybacks Discretionary cash flow Other investments / divestments Other Proceeds from sale of assets Net change to group borrowing/repayments Other Change in cash E E E Adjusted metrics Funds from operations (FFO) (adj) Operating cash flow (OCF) (adj) Free operating cash flow (FOCF) (adj) Discretionary cash flow (DCF) (adj) Key ratios Profitability ROC ROIC after tax ROE after tax Debt & Interest coverage FFO/Debt FOCF/Debt DCF/Debt EBITDA interest coverage FFO cash interest coverage Leverage Debt/EBITDA Equity ratio Debt/(Debt+Equity) Capital expenditure CAPEX/Depreciation and amortisation CAPEX/Sales Working capital ratios Inventory turnover (days) Receivables turnover (days) Days sales outstanding (days) Per share data EPS EPS (adj.) DPS BVPS Equity valuation and yield Market cap. Enterprise value P/E P/BV EV/Sales EV/EBITDA Dividend yield Payout ratio % 2.% 46.5% % % 5.9% % ,547 3, % 6.3% 2 7.9% 7.% 3.5% % 26.9% 5.% % ,939 3, % 34.% 2 7.9% 7.3% 28.9% % 3.3% 8.3% % ,232 2, % 63.5% 2 5.9% 4.9% 22.4% 2 58.% 2.% -5.7% ,889 3, % 73.% % 3.2% 2.5% % 35.9% 7.5% % ,698 3, % 75.% % 6.6% 8.5% % -37.5% -52.8% % , % 89.8% % 9.9% -3.9% % % , %.% 26E -.6% 7.% -8.% 26E 43.4% E %.5 26E E 44 26E E %.% 27E -.2% -.%.9% 27E.4%.8%.8% E %.5 27E E E E %.% 28E -24.8% -22.6% -6.8% 28E.9% E 5 3.3%.6 28E E E E %.% Nordea Markets 4

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6 Fred Olsen Energy 5 July 26 Analyst Shareholding Nordea Markets analysts do not hold shares in the companies that they cover. No holdings or other affiliations by analysts or associates. Market-making obligations and other significant financial interest Nordea Markets has no market-making obligations in Fred Olsen Energy. Recommendation definitions Outperform Over the next three months, the fixed income instrument's total return is expected to exceed the total return of the relevant benchmark. Market perform Over the next three months, the fixed income instrument's total return is expected to be in line with the total return of the relevant benchmark. Investment banking transactions In view of Nordea s position in its markets readers should assume that the bank may currently or may in the coming three months and beyond be providing or seeking to provide confidential investment banking services to the company/companies Underperform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. All research is produced on an ad hoc basis and will be updated when the circumstances require it. Distribution of recommendations Recommendation Outperform Market perform Underperform Total As of July 26 Count % Distribution 3% 6% % % Distribution of recommendations (transactions)* Recommendation Outperform Market perform Underperform Count % Distribution Total 92 As of July 26 * Companies under coverage with which Nordea has ongoing or completed public investment banking transactions. 23% 7% 7% % Completion Date Issuer Review 5 Jul 26, 9:25 CET This report has not been reviewed by the Issuer prior to publication. Nordea Bank AB (publ) Nordea Bank Danmark A/S Nordea Bank Finland Plc Nordea Bank Norge ASA Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Hamngatan Strandgade 3 (PO Box 85) Aleksis Kiven katu 9, Helsinki Essendropsgate 7 SE-5 7 Stockholm DK-9 Copenhagen C FI-2 Nordea N-368 Oslo Sweden Denmark Finland Norway Tel: Tel: Tel: Tel: Fax: Fax: Fax: Fax: Reg.no Reg.no Reg.no Reg.no Stockholm Copenhagen Helsinki Oslo Nordea Markets 6