Time to enter SKPetro?

Today’s headlines: Seadrill exits company by selling 8.2% stake for $195 million

KUALA LUMPUR (NewsRise) –Bermuda-based deep-water drilling contractor Seadrill said it has sold its entire stake in Malaysia’s largest oil and gas service provider SapuraKencana Petroleum for $195 million.

Seadrill sold its remaining 490 million shares, equivalent to 8.2% stake in SapuraKencana, and proceeds from the share sale will provide “additional liquidity” and funds for “general corporate purposes,” the company said in a brief statement on its website.

 The exit of Seadrill, widely-seen as a strategic partner of SapuraKencana, may dent investor sentiment in the short-term though the move was driven mostly by Seadrill’s need to secure cash to service debt amid persistent weakness in the oil and gas sector, analysts said.

“The sale of SapuraKencana shares near the historical low is not entirely surprising given Seadrill is facing pressure to conserve cash,” said Kenanga Investment Bank analyst Sean Lim. “We gather that the transaction is done” at 1.58 ringgit apiece, a discount of 10.7% to the last traded price of 1.77 ringgit.

Seadrill was SapuraKencana’s second-largest shareholder with more than 12% stake when it was listed in 2012 following the merger of SapuraCrest Petroleum and Kencana Petroleum. Seadrill had halved its stake shortly after SapuraKencana’s listing.

A year later, the two companies moved to combine their tender rig businesses in an 8.78 billion ringgit exercise, expanding SapuraKencana’s presence further to Angola, Equatorial Guinea, Trinidad and Tobago. Seadrill last sold 3.8% stake in SapuraKencana in 2014.

The rapid decline in oil prices since mid-2014 however prompted the world’s oil majors to scale back or halt expansion of their exploration and production activities, weighing on demand for services of SapuraKencana and Seadrill.

“Seadrill has a huge accumulation of borrowings and poor cashflow backlog, given the need to sustain debt obligations [amid] persistent weakness in the rig chartering industry,” UOB Kay Hian said in an investors note.

By June, Seadrill would need to restructure loans and bonds worth $11 billion. “Therefore, it is not surprising that it has to dispose of its investments in SapuraKencana, even if the disposal values fall below the blended costs of investment,” the brokerage said.

Though Brent, the global benchmark for crude oil prices, has risen 27% so far this year, prices were still over 60% lower than its peak in June 2014. 

http://asia.nikkei.com/Business/AC/Seadrill-exits-company-by-selling-8.2-stake-for-195-million

 

With this new development, SKPetro dropped 7.34% to RM1.64, dragging FBMKLCI index as well. However, it is the right time to enter into SKPetro?

Performed an updated statistical analysis to assess the relationship between the share price of SKPetro and movements in Brent Crude Oil:

SKPetro_ModelResults_28042016.png

Based on the above relationship, let’s do a quick comparison between the actual and forecast share price of SKPetro:

SKpetro_forecastvsactual_apr2016.png

At brent crude price of USD47.34 (as of 28 Apr 2016), the current share price of SKPetro (RM1.64) appears relatively undervalued if compared to its forecast share price of RM2.2054, with a 95%-confidence interval range of between RM0.9160 –   RM3.4948

What are analysts’ current target price for SKPetro?

Date Open Price Target Price Price Call Source
28/04/2016 1.63 1.93 HOLD KENANGA
28/03/2016 1.89 1.88 SELL TA
28/03/2016 1.89 2.42 BUY RHB-OSK
28/03/2016 1.89 2.72 BUY MIDF
28/03/2016 1.89 1.93 HOLD KENANGA
28/03/2016 1.89 2.75 BUY JF APEX
28/03/2016 1.89 1.81 SELL HLG
22/02/2016 1.94 2.38 BUY KENANGA
11/02/2016 1.77 1.80 HOLD MACQUARIE GROUP
05/02/2016 1.85 1.65 SELL TA

Despite the analysis above, we should wait for SKPetro’s next quarterly result whether there is any further impairment in the assets of this company.

 

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

Author: Ken Utau

Data Scientist, Markets Analyst and Food Lover

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