China Oilfield Services has offered to buy Norwegian company, Awilco Offshore, for $2.5 billion, valuing it at an enterprise value (EV) of $3.8 billion. The deal works out to valuations of CY2010 EV/EBIDTA of 7.1x and price/earnings ratio (PER) of 8.2x.
Drawing a comparison with the Aban Offshore-Sinvest deal of 2006, Sinvest was valued at $2.25 billion, at an EV/EBIDTA of 6.6x and PER of 5.1x CY2008E earnings.
We believe that the increased valuation multiple of the current deal depicts retained faith in the fundamentals of the offshore drilling industry, also re-inforcing our positive outlook on this industry.
Deal is expected to be a positive trigger for the valuations of the offshore drilling sector, and reiterate our positive view on Aban Offshore, which is available at considerable discount to its global peers.
At the current market price, the stock is trading at 5.4x FY2010E earnings and an EV/EBIDTA of 4.8x. The valuations are extremely attractive and we maintain our BUY recommendation with a price target of Rs4,829.