We initiate coverage of Northern Drilling with a BUY recommendation and target price of NOK 90
All the time Seadrill remains in disarray, Northern Drilling has emerged as the new investment vehicle for Fredriksen ahead of the next cyclical upturn in the rig space. The company currently has two more or less complete semi-sub newbuildings warehoused at HHI, and the main assumption is for delivery in Jan/19.
In addition to the company’s main sponsor and aggressive growth at the bottom of the cycle, we expect increased focus from positive investment banker analysts will drive the share price going forward. Further growth driven equity issuances could also contribute to an increase in free float and a primary listing on Oslo Bors or other stock exchanges, increasing investor demand.
Valuation: We estimate NAV NOK 43/sh, implying a rather steep valuation of P/NAV 1.41. However, the current share price of NOK 61 implies a mere 13% asset price appreciation. We set our target price to NOK 90/sh based on a 35% appreciation of asset values from current trough levels.