Energy Sector. SIM STOCK PRESENTATION Spring Adam Hulbert, Didier Hirwantwari, Haochao Jiao and Yuxiang Hui

Transcription

1 Energy Sector SIM STOCK PRESENTATION Spring 2014 Adam Hulbert, Didier Hirwantwari, Haochao Jiao and Yuxiang Hui

2 Agenda I. Overview II. Schlumberger III. National Oilwell Varco IV. Marathon V. Chevron VI. Recommendation 2

3 Sector Overview S&P 500, SIM Portfolio Comparison S&P 500: 10.23% SIM: 8.78% 145 Basis Points Underweight 3

4 Sector Overview Energy Stocks in SIM Portfolio Apache Corp. (APA) 4.40% Chevron Corp. (CVX) 4.37% 4

5 Schlumberger Limited 5

6 Business Overview Schlumberger is the global leader in the Integrated Oilfield Services industry Three business segments: Reservoir Characterization Principal Technologies involved in finding and defining hydrocarbon resources Drilling Principal Technologies involved in the drilling and positioning of oil and gas wells Reservoir Production Principal Technologies involved in the lifetime production of oil and gas reservoirs Company Data Ticker: SLB Beta: 1.75 EPS (2013): $5.09 Trailing P/E: Market Cap: B Enterprise Value: B Dividend Yield: 1.60% Diluted Shares Outstanding: 1.33B 52-Week Price Range: $ $

7 LTM Stock Performance vs. S&P 500 Upward 36.99% 7

8 Drivers & Risks Drivers Expenditures of oil and gas companies growing steadily International market driving revenue growth Especially Middle East & Asia Reservoir Characterization segment driving earnings growth Highest profit margin Risks Fluctuation of oil and gas prices International operation risk and specific country risk Competition and pricing pressure Environmental and regulatory compliance Technology & Innovation Highest R&D expense in the industry Active M&A activities Severe weather conditions 8

9 Financial Analysis Firm Vitals Revenue $ 22,702 $ 27,447 $ 36,959 $ 41,731 $ 45,266 Growth 20.90% 34.66% 12.91% 8.47% Net Income $ 3,134 $ 4,267 $ 4,997 $ 5,490 $ 6,732 Growth 36.15% 17.11% 9.87% 22.62% ROA 9.56% 10.01% 9.34% 9.40% 10.47% ROE 17.42% 16.95% 15.99% 16.63% 18.14% Debt/Assets Ratio 16.38% 15.67% 17.99% 18.90% 19.64% Current Ratio Gross Margin 24.04% 20.42% 21.70% 21.20% 21.95% Operating Margin 18.15% 15.94% 17.64% 17.46% 18.44% Diluted EPS $ 2.59 $ 3.38 $ 3.67 $ 4.10 $ 5.05 Growing fast, Increasing profitability, Good leverage, Great margin 9

10 Financial Analysis Peer Comparison Schlumberger Halliburton Baker Hughes Weatherford Market Cap (mm) ROA 10.47% 7.50% 4.01% -1.54% ROE 18.14% 14.48% 6.30% -4.07% Debt/Assets Ratio 19.64% 26.75% 15.68% 39.71% Current Ratio Gross Margin 21.95% 15.21% 17.04% 19.40% Operating Margin 18.44% 14.07% 8.71% 4.27% Largest Market Cap, Highest Profitability Moderate Leverage & Liquidity, Greatest Margin 10

11 Valuation Analysis Multiples Valuation Current Stock Price: $ WFT HAL BHI NOV RIG Sector Target Multiple Target Value per Share Target Price P/E $5.09 $78.90 P/B $29.83 $89.50 P/S $34.21 $47.90 P/CF $7.40 $66.59 All surprisingly LOW compared with SLB current stock price!! 11

12 Valuation Analysis DCF Valuation 12

13 Terminal Growth Rate Sensitivity Analysis DCF Valuation Sensitivity Analysis Discount Rate 9.90% 10.20% 10.50% 10.80% 11.10% 11.40% 11.70% 3.00% % % % % % %

14 Final Price Target Schlumberger Price Target Metric Price Weight P/E $ % P/B $ % P/S $ % P/CF $ % DCF $ % Recommendation: BUY Final Price Target Current Price (4/14/2014) Upside Potential $ $ % 14

15 National Oilwell Varco Oil well Services & Equipment Industry 15

16 Business Overview Provides equipment, components, and services for the oil & gas drilling industries Operations in over 1,100 locations across 6 continents Products on 90% of offshore/onshore oil rigs 16

17 Stock vs S&P 500 vs Energy 17

18 Drivers vs Risks Drivers Rapidly increasing shale gas production International growth: Russia, Brazil, Canada Segment spin-off & revamp Strive for standardization Risks Volatile oil prices Cost overruns End to Oil & Gas Boom? Dayrate Decreases (daily rate operator pays rig owner) 18

19 Financial Analysis 19

20 Financial Analysis P/E: 26% undervalued P/CF: 59% cheaper P/B: price per share $

21 Valuation Analysis 21

22 Valuation Analysis Target Multiple Valuation Target price is even higher than DCF through this valuation method, shows the potential upside for NOV. 22

23 Recommendation Target Price: $88.41 Current Price: $80.34 Upside: 10.04% BUY 23

24 Marathon Oil Corporation 24

25 Business Overview Introduction International energy company engaged in oil and gas exploration & production Span off its downstream business in 2011 and focused on upstream business since then Operating Segments North America E&P International E&P Oil Sands Mining Stock Data Current Price $ Week Price Range $ Market Capitalization 24.76B Shares Outstanding 710M Dividend $0.76 Dividend Yield 2.20% Historic Beta Month Stock Performance 25

26 Business Overview Sustained Competitive Advantages Prioritize in Liquid-Rich Plays 72% of the 2014 budget goes to North America E&P Actively divestitures and acquisitions to optimize portfolio MRO divested approximately $3.5 billion assets from 2011 to 2013 MRO announced to begin accepting bids for its North Sea businesses in the second quarter Align Interest with Shareholders MRO increased 12% of its dividend in 2013 MRO expanded its share buyback program to a total of $1.5 billion 26

27 Drivers & Risks Drivers and Risks Drivers World economy shows strong growth trend in 2014 Increasing profitability and strong efficiency Healthy financial condition Strong dividend payment and intensive share repurchase program Risks High Volatility of Oil and Gas Prices Uncertainty of the Possible Sale of the UK and Norway North Sea Businesses Uncertainty of future exploration and drilling results 27

28 Financial Analysis Profitability Analysis Peer Comparison DVN COP MUR APC HES MRO Average Average MRO HES APC MUR COP DVN Gross Margin Profit Margin ROA ROE

29 Financial Analysis Profitability Analysis DuPont Analysis Net Income Margin Asset Turnover Leverage Ratio ROE FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 Net Income Margin Asset Turnover Leverage Ratio ROE

30 Financial Analysis Leverage and Liquidity Analysis Curr Ratio Quick Ratio Debt/ Equity Debt/ Asset EBIT/ Interest Exp Average MRO HES APC MUR COP DVN

31 Valuation Analysis DCF Valuation Price Range: $ MRO DCF Projections 2013E 2014E 2015E Current P/E Projected P/E Current EV/EBITDA Projected EV/EBITDA Diluted Shares Outstanding 710 Current Price $ /4/14 Implied equity value/share $ Upside/(Downside) to DCF 19.92% 31

32 Valuation Analysis Sensitivity Analysis Tornado Chart 32

33 Valuation Analysis Relative Valuation Peers: MUR, COP, HES, APC, DVN Price Range: $ Current Peers Multiple MUR COP HES APC DVN Target Multiple Target Price % chg from current price P/E % P/S % P/B % P/CF % average % 33

34 Recommendation Target Price: $41.0 Current Price: $35.54 Upside Pontitial: 15.36% Recommendation: BUY Valuation Ranges 52-week Trading Range Relative Valuation DCF

35 Chevron Corporation 35

36 Business Overview Chevron: Chevron is a company that is engaged in the Oil and exploration business and is part of the Energy Sector and falls under the Integrated Oil and Exploration Sub- Industry. Above is Chevron s Deepest offshore production Facility in the Gulf of Mexico off of the New Orleans Coast Part of Chevron s push towards the upstream segment. 36

37 Business Overview Business Segments Upstream: Exploration and development of crude oil and natural gas; Includes but is not limited to processing, liquefaction, transporation and regasification assiatied with liquefied natural gas. Downstream: Refining crude oil into petroleum products that include but are not limited to the marketing of crude oil and redefined products and the transportingcrude oil and refined products by pipeline Chemicals: 50% interest in its Chevron Phillips Chemical Company LLC (CPChem) Affiliate. Stock Data Current Price $ Week Price Range Market Cap (billions) $ Diluted Sahres Outstanding (billions) 1.92 Dividend (QTR) $1.00 Dividend Yield 3.5% Historic Beta Month Stock Performance 37

38 Drivers & Risks Economic Catalysts Oil prices in conjunction with Energy demand are projected to increase. Favorable verdict in the Ecuador litigation case adding to increased investor trust Expansion of profitable segments (Upstream and Downstream) Economic Risks Volatility of Oil prices Geopolitical issues arising in Russia where chevron has production facilities Less diversification through concentration of only two segments Regulation risks in emerging markets where CVX owns stake 38

39 Financial Analysis Profitability Ratios Outperformance of the Energy Sector on avg. for the past five years. Ratios CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 avg ROE CVX ROE S&P 500 Energy Sector ROC cvx ROC S&P 500 Energy Sector Operating Margin CVX Operating Margin S&P 500 Energy Sector ROA CVX ROA S&p 500 Energy Sector

40 Financial Analysis Peer comparison Latest Filing Ticker Mkt Cap (USD) P/E LF ROC LF OPM:Y Net Mrgn 5Yr Avg:Y Integrated Oil & Gas (8 securities) Average CVX US Equity XOM US Equity HES US Equity IMO CN Equity BP/ LN Equity RDSA LN Equity OXY US Equity FP FP Equity * Overall notion here is that Chevron is cheaper than the Market leaders in the sub industry with a p/e of as well as having a higher operating margin of 9.98 than both sub industry leaders Royal Dutch and Mobil. 40

41 Valuation Analysis DCF Valuation & Sensitivity Analysis NPV of Cash Flows 153,489 53% NPV of terminal value 134,945 47% Projected Equity Value 288, % Free Cash Flow Yield 9.35% 2014E 2015E 2016E Current P/E Disct rate Projected P/E Current EV/EBITDA FCF rate Projected EV/EBITDA Shares Outstanding 1,920 Current Price $ Implied equity value/share$ Upside/(Downside) to DCF 28.3% Range of Discnt Rate 10%-11% Range of FCF Rate 2.50%-5.50% Conclusion is that even with extreme extreme rates, firm is still undervalued. 41

42 Valuation Analysis Sum of parts Peer Comparison P/E basis as well as previous DCF are the basis of my implied 42

43 Recommendation Target Price: $ Current Price: $ Upside potential: 9.48% DCF %.50 Sum of parts %.50 Final Recommendation: Buy up to 4.5% of total weigh 43

44 Final Recommendations Company Price Target Current Price Current Weight Change Recommended Weight Upside Pontential Schlumberger $ $ bps BUY 250 bps 8.55% National Oilwell Varco $ $ bps BUY 300 bps 10.04% Marathon $ $ bps BUY 200 bps 15.36% Chevron $ $ bps BUY 450 bps 9.48% * 173 bps overweight to S&P

45 Thank you! Any Questions? 45