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Seadrill tagged with Sell rating at Nordea

  • Seadrill (SDRL -1%) is downgraded to Sell from Hold at Nordea despite the offshore driller’s solid earnings earlier this week.
  • SDRL was slightly more positive on the ultra-deepwater market than in its Q4 presentation, but the lack of contract leads for 2013-built West Tellus in 2014 is a clear sign of how quiet the market is, Nordea says, expecting the market to remain weak in the next few years due to the large number of uncontracted newbuilds and plenty of units coming off contract.
  • With limited earnings visibility beyond 2015 and likely worsened data points from the market, Nordea sees sustainability of the dividend as uncertain for the next few months.
  • SDLP -1.1%.
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Comments (39)
  • King Rat
    , contributor
    Comments (724) | Send Message
     
    Nordea also has DO at a sell. The sector can't get any love from analysts which is probably why we'll see an article in 6 months that Berkshire Hathaway "decided in October, 2014 to invest in the 'cigar butts' of DO, RIG, RDC, etc." and suddenly analysts will change their tune. Meanwhile the prop desks at these firms are buying on the cheap.
    30 May, 03:06 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    Well, it's the same analysts that got SDRL's earnings completely wrong. So the guy got it wrong and now we're supposel to take him and his brethren seriously?
    1 Jun, 06:39 PM Reply Like
  • oskar96
    , contributor
    Comments (96) | Send Message
     
    OK You sell at 33 I will buy it and rake in the div
    30 May, 03:08 PM Reply Like
  • BearDog2
    , contributor
    Comments (46) | Send Message
     
    if they're so sure r they shorting it? I doubt it very much. I'm long and will be content to just continue to get my checks
    30 May, 03:19 PM Reply Like
  • Tda
    , contributor
    Comments (96) | Send Message
     
    Prices always go down on Friday. So unless some unusual circumstance substantially changes the company, never sell on Friday no matter what some "expert" says, including Nordea Financial Services. Seems more likely that Nordea is attempting to manipulate the offshore drilling sector to its own advantage.
    30 May, 03:22 PM Reply Like
  • Factoid
    , contributor
    Comments (33) | Send Message
     
    Why would they bother to downgrade if they weren't interested in buying?
    30 May, 08:50 PM Reply Like
  • boyadj2000@yahoo.com
    , contributor
    Comments (20) | Send Message
     
    Who is Nordea anyway?
    30 May, 03:28 PM Reply Like
  • mikegrills
    , contributor
    Comment (1) | Send Message
     
    Aw yes. Missed the boat on the up-swing and downgrade it to try and get back in.
    30 May, 03:34 PM Reply Like
  • Trader909
    , contributor
    Comments (17) | Send Message
     
    I guess this Nordea(?) rainmaker decided to ignore the dividend reserve that is funded from MLP dropdowns, which at this very second could support something like another $0.28 increase in the dividend. Have any of the bear analysts provided a detailed liquidity analysis with dayrate sensitivity by rig that details the exact magnitude and timing of a liquidity squeeze that would necessitate a cut in the dividend? And if they actually did provide such an analysis did they then qualitatively assess the merits and considerations of cutting the dividend against taking other liquidity measures like 1) delaying NB delivery; 2) selling some of the $3bn+ of investments in associates; 3) dropping assets into either SDLP or NADL; 4) placing an off-market, privately negotiated pref or hybrid instrument with a small club of pe/structured equity and credit funds; and on and on and on.... I assume the answer is a definitive no to all of the above and that for some unknown reason these guys put there finger in the air and claim 10% yield is unsustainable, because well they say it is. So then I ask them, if 10% is unsustainable, what yield is sustainable - 8%, 9%. Yes, hmmm...makes perfect sense indeed. The 10-yr. UST has compressed to 2.50%. Fixed-rate leg for 10-yr. swaps are pricing ~2.80%. So we have a company that generates an ROIC of 20% in an environment where it can fix debt for 10yrs. at a an all-in cost of ~5.5% (inclusive of ~250 bps margin). And these guys are worried about a dividend cut. It makes no practical, qualitative, quantitative, economic or other sense.
    30 May, 04:20 PM Reply Like
  • Trader909
    , contributor
    Comments (17) | Send Message
     
    And i failed to mention option # 5) above (which really should be 1) FORM A JV WITH A RUSSIAN OIL MAJOR THAT IS GOING TO INJECT SOME HUNDREDS OF MILLIONS OF CASH INTO COMPANY...thought that one was obvious, but apparently not
    30 May, 04:26 PM Reply Like
  • Budavar
    , contributor
    Comments (1387) | Send Message
     
    Dear Trader909, The PR refers to billions, not millions:

     

    9 (Nine) rigs

     

    for a total commitment of

     

    35 rig years.

     

    For more, please visit http://www.seadrill.com, a most informative website.

     

    These rigs are ultra-deep, ultra cold weather resistant rigs which
    command the highest day rates.

     

    Regretfully SDRL continues with its ham-handed PR as to timing,
    releasing this PR in the middle of the Memorial Day week-end
    when folks attention, at east in America, was elsewhere.
    31 May, 12:03 AM Reply Like
  • Joe Lunchbox
    , contributor
    Comments (444) | Send Message
     
    If the price drops, that just makes it easier to buy. Hooray!
    30 May, 05:02 PM Reply Like
  • djdeerrun
    , contributor
    Comments (13) | Send Message
     
    (With limited earnings visibility beyond 2015 and likely worsened data points from the market, Nordea sees sustainability of the dividend as uncertain for the next few months.)This as usual is all guess work on their part.Seadrill came out with good earnings and raised their dividend and they are downgraded because an analyst has an illusion that may not do as well in the future. I don't get it.
    30 May, 05:16 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    Analysts keep not understanding SDRL and calling for the dividend to be cut and when it's increased, they call it to be cut again.

     

    It's a mystery to me how they still have any credibility...
    1 Jun, 06:42 PM Reply Like
  • Dan Terry
    , contributor
    Comments (34) | Send Message
     
    Fact of the matter is the SDRL P/E indicates the current price its trading at is rock bottom compared to the high earnings it has - thats why the dividend is 10% - This same dividend will be about 7% when the stock trades in the 50's. This is the stock to be in for offshore drilling, none of the others in this sector are worth buying when you can get into SDRL - they do not have this much earnings per share and the best/newest ultra deep water capabilities. As for oil prices dropping, basically a fairy tale since almost everything is powered by oil and countries like china are using up whatever oil we can save here with green energy/smaller cars. BTW - the oil shale plays are turning out to produce much less oil then expected - keep that in mind.
    30 May, 05:16 PM Reply Like
  • arthur_bishop1972
    , contributor
    Comments (2400) | Send Message
     
    Disagree on SDRL being the only one worth buying in the sector. ESV and NE are solid buys right now.
    30 May, 08:58 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    I like ORIG too. Long NADL but re-evaluating as I'm not thrilled with having Russian co-owners (nothing against Russian people - a lot against the sad history of spoliation by their government)
    1 Jun, 06:44 PM Reply Like
  • Dan Terry
    , contributor
    Comments (34) | Send Message
     
    Seadrill is the only stock I would buy in this sector - it has the best P/E ratio of the sector, highest dividend yield, newest equipment and best for ultra-deep water (and thats where the most new oil is located). Take full advantage of all the short sellers trashing it while you still can(as you see its on the way up already) & lock in the 10% div, once its in the 50's the div will amount to around 7% and p/e will be in line with the other deep water drillers -bargain buy over. BTW - Oil shale may be producing much less oil than expected with higher costs then expected - this news has just been emerging in the last few weeks from one oil shale company, ultra-deep water may be the only real choice for large amounts of new oil.
    30 May, 05:16 PM Reply Like
  • Factoid
    , contributor
    Comments (33) | Send Message
     
    I agree except I would add ESV and SDRL.
    30 May, 08:52 PM Reply Like
  • arthur_bishop1972
    , contributor
    Comments (2400) | Send Message
     
    Ooooops....meant to post this under Dan Terry's post.

     

    <Disagree on SDRL being the only one worth buying in the sector. ESV and NE are solid buys right now.>

     

    ....and I did start a position in NE (@ $30.45) for a client last week.
    31 May, 12:48 PM Reply Like
  • Auldlad
    , contributor
    Comment (1) | Send Message
     
    Nordea is the Scandinavian IB, and as such may have a better understanding of what the owners of SDRL could have in mind regarding the dividend, as rigs come off contract in next few years into a softer market.
    30 May, 05:16 PM Reply Like
  • Tda
    , contributor
    Comments (96) | Send Message
     
    Auldlad, even if Nordea's crystal ball works better than mine, its 'sell' recommendation is not supported by the company's strong financials and new contracts, which are a net gain over contracts that will be expiring. With a P/E less than 7, SDRL is very underpriced, and it's definitely not overbought. Nordea either made a mistake or it's trying to manipulate the price lower. It makes no sense otherwise, but either way it undermines their own credibility.
    30 May, 05:51 PM Reply Like
  • mapodga
    , contributor
    Comments (3062) | Send Message
     
    They don't care much about credibility.
    They are investment bank and I think that would sold own mother for few additional bucks.

     

    Analysts should be forbidden to trade and investment companies should be forbidden to pretend themselves to be independent evaluators.
    Currently is total mess.
    30 May, 06:52 PM Reply Like
  • Trader909
    , contributor
    Comments (17) | Send Message
     
    Why does one have to be from Scandinavia to understand that SDRL has explicitly said the dividend is not being cut and to understand that SDRL has essentially executed a balance sheet restructuring creating more flexibility to meet potential disruptions to operating cash flow stemming from what is a "temporary" market softness? Why does one need to be from Scandinavia to understand that the dividend is the central tenet to the founders' business model and there is no other driller wherein the principal founders' economic interest is as aligned with the shareholders? He gets richer when the shareholders get paid (being that he is the largest at ~25%). The founder is a shrewd steward of capital preservation and value creation and would not continuously defend the dividend while secretly planning to cut it. Nor would he purchase 2 million out-of the-money call options seemingly every quarter since last year (including as recent as April) if a div cut is even a remote possibility (and you don't need to be from Scandinavia to track that level of insider buying, you only need to peruse SEC filings. Maybe if one is from Scandinavia they didn't think of doing that?)
    30 May, 07:49 PM Reply Like
  • mapodga
    , contributor
    Comments (3062) | Send Message
     
    vote JF for president of the all world shareholders :).

     

    He is really our guy.
    31 May, 06:56 AM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    I'm not from Scandinavia and I get it. :)

     

    Been posting again and again there was no risk of a dividend cut and we've just got two raises... all it took was reading the company statements to make this "brilliant prediction"...
    1 Jun, 06:45 PM Reply Like
  • tennis44
    , contributor
    Comments (58) | Send Message
     
    They are shorting and buying cheap. They should ban. Analysts. From trading and trying to pretend the are credible. Buy sdrl Watch
    30 May, 07:55 PM Reply Like
  • ge12ar
    , contributor
    Comments (108) | Send Message
     
    That is truly the stupidest analyst report I have ever read in the 45 years I have been reading them. The dividend is in jeopardy. It has been raised twice this year and neither was necessary since the yield is something like 9%. While the increase was not likely to do much for the stock if it were cut in the near future that would have a very negative effect. So unless the Board of SDRL consists of a bunch of morons they must feel very confident that it can be at least maintained or it would have been very foolish to have approved the increase.I also particularly liked the comment that there was not much visibility on earnings post 2015. Tell me one company that has great visibiltiy on post '15 earnings. Can Apple, Exxon, Mocrosoft or any other listed company tell you with any certainty what their revenuse will be in 2016? Actually SDRL can give you a far better prediction than almost any company I follow.
    This report was to put it mildly a POS and any one who acts because of it is IMO truly a fool and they deserve what happens to them. Total Garbage! For the record I have a substantial investment(for me ) in SDRL and NADL
    30 May, 07:57 PM Reply Like
  • elvislevel
    , contributor
    Comments (631) | Send Message
     
    I think Fredriksen should use his genius with borrowed money to build the worlds largest and most modern oil tanker fleet. I mean, what could go wrong? The stuff has to be moved, right?
    30 May, 11:54 PM Reply Like
  • Trader909
    , contributor
    Comments (17) | Send Message
     
    Its funny how the world just cant seem to right its course such that every stock and every industry cant just grow exponentially up and to the right all the time. Putting aside for a moment that there is not a single dynamic (fundamental or otherwise) that is comparable to offshore drilling, I guess you throw Frontline 2012 into the same trash bin you threw AAPL in in 1997? (almost bankrupt, but not, and then quickly restructured by the founding principal to refocus on services and assets that would produce better returns over the long-term). I also have a very simple question for you. Next-time you pull out a wad of bills from your pocket I would like you calculate how much of the collective value of "Federal Reserve Notes" in your hand is borrowed money?
    31 May, 07:51 AM Reply Like
  • elvislevel
    , contributor
    Comments (631) | Send Message
     
    A company run by a guy called Fredriksen where all of cash flows go to dividends and massive borrowing used to fund a frantic expansion of expensive oil support equipment that is rented out. Nah, hardly similar at all. Never mind then.

     

    AAPL is in the fashion business and survived by finally stringing a few hits together. The Blue Jays won 11 games in a row last year and ended up last in their division. I own a bit of AAPL because it makes way to much money not to, but it would not surprise me to see it go to zero again. Anyway, the connection to oil rig renters eludes me.

     

    Country borrowing is nothing like personal or corporate borrowing because we all don't have our own currency.
    31 May, 05:38 PM Reply Like
  • Trader909
    , contributor
    Comments (17) | Send Message
     
    I was alluding to a disconnect between shipping and offshore contract drilling (ultra-deepwater) on a more nuanced level - market fragmentation. I am just going to take stab, but I believe the global shipping fleet (all classes) numbers 40,000+ or so. And the number of owner/operators is also many thousands. And I would also conjecture that the sub-classes with the most fragmentation (drybulk, container) still can't see any light at the end of the abyss the rampant overbuilding created. However, the more specialized, higher barrier to entry segments are at least showing some signs of strength (large LPG, LNG, very large containers, and even VLs). You may see things differently, but I don't view ultra-deepwater contract drilling as either a fragmented industry nor a commodity service and I see more consolidation in the future than fragmentation. In a matter of words, SDRL has been saying to the market since 2005, "Leave the gun (older, low-spec, shallow rigs) and take the canoles (higher-grade, higher-return, greater demand inelasticity, UDW rigs)! And as far as the comment on borrowing, all wealth, whether sovereign or personal is borrowed. Do you keep any of it in the end?
    1 Jun, 08:49 AM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    Great point, Trader. When you look at Frontline, it doesn't look like the horribly managed bankrupt company that is so often described here.
    1 Jun, 06:47 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    Then why do you waste your and our time discussing SDRL if you hate John Frederiksen?

     

    Your argument is all feelings and no fact and darnm if I understand why you keep trying to save us from making money in SDRL.

     

    It's not like we're married to it. When the investing thesis changes, I'll sell (I'm reconsidering as we speak as I'm doubting the wisdom of bringing in a Russian company in with its attendant political problems - although I guess if someone can figure it out JF is probably the man to do it).
    1 Jun, 06:51 PM Reply Like
  • elvislevel
    , contributor
    Comments (631) | Send Message
     
    Trader909, thanks for all that. I try to be a little provocative here because I am curious and lazy. The color you provide is interesting but however awesome the new rigs are, an overbuild is an overbuild. When the housing bubble burst "high quality" assets did not get a pass. What I think would be helpful is a graph of total number of deep water rigs over time to get a sense of whether a bubble is developing. If you had some evidence that exploration companies are wetting their pants waiting for such rigs that would be nice too, but I am doubtful. It seem they have lots of options on what to do with their money.

     

    SDRL makes a decent ROC but their cash flow has barely moved in 5 years and half of their massive spending, dvd+capex, has been borrowed for 10 years. Extraordinary claims need extraordinary evidence. A 10% dvd is a pretty extraordinary claim about the future viability of the business. A big order book is nice, but all bubbles pop just after orders spike. The complete blowing off of Frontline as something to think about even a little is impressive.

     

    DividendInvestorLA, always a pleasure.
    2 Jun, 04:35 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    Thank you Elvis.

     

    Have you tried looking at http://www.ihs.com?

     

    I find it very important to follow.
    8 Jun, 02:43 PM Reply Like
  • eapss
    , contributor
    Comments (48) | Send Message
     
    These analysts did not participate in earnings call. Lacks seriousness, rumored to be friends of "Prudent".
    31 May, 05:55 AM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3573) | Send Message
     
    West Tellus is contracted until July. The "article" made it sound like it was idle. It's not.

     

    Amazing bad faith!!!
    1 Jun, 06:54 PM Reply Like
  • A Prudent Investor
    , contributor
    Comments (1192) | Send Message
     
    West Tellus has been ready stacked already. You need to update your facts before dismissing someone. You seem to believe anything remotely positive and ignore anything negative. That is not Prudent!
    19 Jun, 11:18 PM Reply Like
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