We initiate coverage of Atwood Oceanics with a BUY recommendation and target price of USD 19
The company has four modern UDWs/Drillships and five modern Jackups on the water, in addition to an aging Deepwater rig and two UDW newbuildings stacked at DSME until 2019/20 but deliverable at Atwood’s option.
Atwood has ample liquidity after the recent equity issue of net USD 181m at the accretive adj. net price of USD 10.3/sh, and has an additional USD 545m undrawn under its revolver which is maturing in May/19. Currently USD 850m is drawn under the facility, and the refinancing will most likely be a hot topic on the street as long as the rig market remains in a trough. However, we expect rates to improve in 2017 and that the company will retain ample liquidity in the expansionary phase of the cycle.
Valuation: We pencil in a 35% appreciation of asset values to reach our target price of USD 19/sh, with further support lent from a mid-cycle EV/EBITDA valution in 2018E at USD 12/sh.