Intrinsic value of ENSCO plc - ESV

Previous Close

$4.48

  Intrinsic Value

$4.63

stock screener

  Rating & Target

hold

+3%

Previous close

$4.48

 
Intrinsic value

$4.63

 
Up/down potential

+3%

 
Rating

hold

We calculate the intrinsic value of ESV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,739
  1,779
  1,825
  1,876
  1,933
  1,995
  2,063
  2,137
  2,216
  2,301
  2,392
  2,489
  2,593
  2,703
  2,819
  2,943
  3,073
  3,212
  3,358
  3,512
  3,675
  3,847
  4,028
  4,218
  4,419
  4,631
  4,853
  5,087
  5,334
  5,593
Variable operating expenses, $m
  424
  434
  445
  458
  472
  487
  503
  521
  541
  562
  584
  607
  633
  659
  688
  718
  750
  784
  819
  857
  897
  939
  983
  1,029
  1,078
  1,130
  1,184
  1,241
  1,301
  1,365
Fixed operating expenses, $m
  1,593
  1,628
  1,664
  1,701
  1,738
  1,776
  1,816
  1,855
  1,896
  1,938
  1,981
  2,024
  2,069
  2,114
  2,161
  2,208
  2,257
  2,307
  2,357
  2,409
  2,462
  2,516
  2,572
  2,628
  2,686
  2,745
  2,806
  2,867
  2,930
  2,995
Total operating expenses, $m
  2,017
  2,062
  2,109
  2,159
  2,210
  2,263
  2,319
  2,376
  2,437
  2,500
  2,565
  2,631
  2,702
  2,773
  2,849
  2,926
  3,007
  3,091
  3,176
  3,266
  3,359
  3,455
  3,555
  3,657
  3,764
  3,875
  3,990
  4,108
  4,231
  4,360
Operating income, $m
  -279
  -283
  -285
  -282
  -277
  -268
  -256
  -240
  -221
  -198
  -172
  -142
  -109
  -71
  -29
  16
  67
  122
  181
  246
  316
  392
  473
  561
  655
  756
  863
  979
  1,102
  1,233
EBITDA, $m
  168
  174
  184
  200
  220
  245
  274
  309
  348
  393
  442
  497
  557
  623
  695
  772
  856
  947
  1,044
  1,148
  1,260
  1,380
  1,508
  1,644
  1,790
  1,945
  2,110
  2,286
  2,472
  2,670
Interest expense (income), $m
  265
  291
  298
  306
  315
  326
  337
  350
  363
  378
  394
  411
  430
  450
  470
  493
  516
  541
  568
  595
  625
  656
  689
  724
  760
  799
  839
  882
  927
  974
  1,024
Earnings before tax, $m
  -569
  -581
  -591
  -598
  -602
  -605
  -605
  -603
  -599
  -593
  -584
  -572
  -558
  -541
  -522
  -500
  -474
  -446
  -414
  -379
  -340
  -297
  -251
  -200
  -144
  -84
  -19
  52
  128
  209
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  14
  34
  56
Net income, $m
  -569
  -581
  -591
  -598
  -602
  -605
  -605
  -603
  -599
  -593
  -584
  -572
  -558
  -541
  -522
  -500
  -474
  -446
  -414
  -379
  -340
  -297
  -251
  -200
  -144
  -84
  -19
  38
  93
  153

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  14,255
  14,583
  14,958
  15,378
  15,845
  16,356
  16,913
  17,516
  18,166
  18,863
  19,609
  20,405
  21,252
  22,152
  23,108
  24,121
  25,193
  26,326
  27,524
  28,789
  30,123
  31,530
  33,014
  34,577
  36,223
  37,956
  39,780
  41,700
  43,719
  45,843
Adjusted assets (=assets-cash), $m
  14,255
  14,583
  14,958
  15,378
  15,845
  16,356
  16,913
  17,516
  18,166
  18,863
  19,609
  20,405
  21,252
  22,152
  23,108
  24,121
  25,193
  26,326
  27,524
  28,789
  30,123
  31,530
  33,014
  34,577
  36,223
  37,956
  39,780
  41,700
  43,719
  45,843
Revenue / Adjusted assets
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
Average production assets, $m
  13,000
  13,299
  13,641
  14,024
  14,449
  14,916
  15,424
  15,974
  16,566
  17,202
  17,882
  18,608
  19,381
  20,202
  21,073
  21,997
  22,974
  24,008
  25,100
  26,254
  27,471
  28,754
  30,107
  31,532
  33,033
  34,614
  36,277
  38,028
  39,870
  41,807
Working capital, $m
  181
  185
  190
  195
  201
  208
  215
  222
  230
  239
  249
  259
  270
  281
  293
  306
  320
  334
  349
  365
  382
  400
  419
  439
  460
  482
  505
  529
  555
  582
Total debt, $m
  5,136
  5,276
  5,435
  5,614
  5,812
  6,029
  6,266
  6,522
  6,799
  7,095
  7,412
  7,750
  8,110
  8,493
  8,899
  9,329
  9,785
  10,267
  10,776
  11,313
  11,880
  12,478
  13,109
  13,773
  14,473
  15,209
  15,985
  16,800
  17,659
  18,561
Total liabilities, $m
  6,058
  6,198
  6,357
  6,536
  6,734
  6,951
  7,188
  7,444
  7,720
  8,017
  8,334
  8,672
  9,032
  9,415
  9,821
  10,251
  10,707
  11,189
  11,698
  12,235
  12,802
  13,400
  14,031
  14,695
  15,395
  16,131
  16,906
  17,722
  18,581
  19,483
Total equity, $m
  8,197
  8,385
  8,601
  8,843
  9,111
  9,405
  9,725
  10,072
  10,445
  10,846
  11,275
  11,733
  12,220
  12,738
  13,287
  13,869
  14,486
  15,138
  15,826
  16,553
  17,321
  18,130
  18,983
  19,882
  20,828
  21,825
  22,873
  23,977
  25,138
  26,360
Total liabilities and equity, $m
  14,255
  14,583
  14,958
  15,379
  15,845
  16,356
  16,913
  17,516
  18,165
  18,863
  19,609
  20,405
  21,252
  22,153
  23,108
  24,120
  25,193
  26,327
  27,524
  28,788
  30,123
  31,530
  33,014
  34,577
  36,223
  37,956
  39,779
  41,699
  43,719
  45,843
Debt-to-equity ratio
  0.630
  0.630
  0.630
  0.630
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
  0.680
  0.680
  0.680
  0.680
  0.690
  0.690
  0.690
  0.690
  0.690
  0.700
  0.700
  0.700
  0.700
  0.700
Adjusted equity ratio
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -569
  -581
  -591
  -598
  -602
  -605
  -605
  -603
  -599
  -593
  -584
  -572
  -558
  -541
  -522
  -500
  -474
  -446
  -414
  -379
  -340
  -297
  -251
  -200
  -144
  -84
  -19
  38
  93
  153
Depreciation, amort., depletion, $m
  447
  457
  469
  482
  497
  513
  530
  549
  569
  591
  615
  639
  666
  694
  724
  756
  789
  825
  863
  902
  944
  988
  1,035
  1,084
  1,135
  1,189
  1,247
  1,307
  1,370
  1,437
Funds from operations, $m
  -122
  -124
  -122
  -116
  -106
  -92
  -75
  -54
  -30
  -1
  31
  67
  108
  153
  202
  256
  315
  379
  448
  523
  604
  691
  784
  884
  991
  1,106
  1,228
  1,345
  1,463
  1,589
Change in working capital, $m
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
Cash from operations, $m
  -126
  -128
  -127
  -121
  -112
  -99
  -82
  -62
  -38
  -10
  21
  57
  97
  141
  190
  243
  301
  365
  433
  507
  587
  673
  765
  864
  970
  1,084
  1,205
  1,320
  1,438
  1,562
Maintenance CAPEX, $m
  -438
  -447
  -457
  -469
  -482
  -497
  -513
  -530
  -549
  -569
  -591
  -615
  -639
  -666
  -694
  -724
  -756
  -789
  -825
  -863
  -902
  -944
  -988
  -1,035
  -1,084
  -1,135
  -1,189
  -1,247
  -1,307
  -1,370
New CAPEX, $m
  -255
  -299
  -342
  -384
  -425
  -467
  -508
  -550
  -592
  -636
  -680
  -726
  -773
  -821
  -871
  -924
  -978
  -1,034
  -1,092
  -1,153
  -1,217
  -1,283
  -1,353
  -1,425
  -1,501
  -1,581
  -1,664
  -1,751
  -1,842
  -1,937
Cash from investing activities, $m
  -693
  -746
  -799
  -853
  -907
  -964
  -1,021
  -1,080
  -1,141
  -1,205
  -1,271
  -1,341
  -1,412
  -1,487
  -1,565
  -1,648
  -1,734
  -1,823
  -1,917
  -2,016
  -2,119
  -2,227
  -2,341
  -2,460
  -2,585
  -2,716
  -2,853
  -2,998
  -3,149
  -3,307
Free cash flow, $m
  -819
  -874
  -925
  -974
  -1,019
  -1,062
  -1,103
  -1,142
  -1,179
  -1,215
  -1,250
  -1,283
  -1,315
  -1,346
  -1,376
  -1,404
  -1,432
  -1,459
  -1,484
  -1,509
  -1,532
  -1,554
  -1,576
  -1,596
  -1,614
  -1,632
  -1,648
  -1,677
  -1,711
  -1,745
Issuance/(repayment) of debt, $m
  126
  139
  159
  179
  198
  217
  237
  256
  276
  296
  317
  338
  360
  383
  406
  430
  456
  482
  509
  537
  567
  598
  630
  664
  700
  737
  775
  816
  858
  903
Issuance/(repurchase) of shares, $m
  750
  770
  806
  840
  871
  899
  926
  950
  973
  993
  1,012
  1,030
  1,045
  1,059
  1,072
  1,082
  1,091
  1,098
  1,103
  1,106
  1,107
  1,106
  1,103
  1,098
  1,091
  1,080
  1,068
  1,066
  1,068
  1,069
Cash from financing (excl. dividends), $m  
  876
  909
  965
  1,019
  1,069
  1,116
  1,163
  1,206
  1,249
  1,289
  1,329
  1,368
  1,405
  1,442
  1,478
  1,512
  1,547
  1,580
  1,612
  1,643
  1,674
  1,704
  1,733
  1,762
  1,791
  1,817
  1,843
  1,882
  1,926
  1,972
Total cash flow (excl. dividends), $m
  57
  35
  40
  45
  50
  55
  59
  64
  69
  74
  80
  85
  90
  96
  102
  108
  114
  121
  128
  135
  142
  150
  158
  167
  176
  185
  195
  205
  215
  227
Retained Cash Flow (-), $m
  -750
  -770
  -806
  -840
  -871
  -899
  -926
  -950
  -973
  -993
  -1,012
  -1,030
  -1,045
  -1,059
  -1,072
  -1,082
  -1,091
  -1,098
  -1,103
  -1,106
  -1,107
  -1,106
  -1,103
  -1,098
  -1,091
  -1,080
  -1,068
  -1,104
  -1,161
  -1,221
Prev. year cash balance distribution, $m
  76
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -617
  -735
  -766
  -795
  -821
  -845
  -866
  -886
  -903
  -919
  -933
  -945
  -955
  -963
  -970
  -974
  -976
  -977
  -975
  -971
  -965
  -956
  -945
  -931
  -915
  -895
  -873
  -899
  -946
  -995
Discount rate, %
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
  -571
  -625
  -595
  -558
  -516
  -471
  -425
  -377
  -331
  -285
  -242
  -203
  -167
  -135
  -107
  -83
  -63
  -47
  -34
  -24
  -17
  -11
  -8
  -5
  -3
  -2
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  88.2
  77.8
  68.4
  60.0
  52.6
  46.1
  40.4
  35.5
  31.2
  27.4
  24.2
  21.4
  19.0
  16.9
  15.1
  13.5
  12.2
  11.0
  9.9
  9.0
  8.2
  7.6
  7.0
  6.4
  6.0
  5.5
  5.2
  4.9
  4.6
  4.3

Ensco plc is an offshore contract drilling company. The Company provides offshore contract drilling services to the international oil and gas industry. Its segments include Floaters, Jackups and Other. The Floaters segment includes its drillships and semisubmersible rigs, and provides contract drilling. Other consists of management services on rigs owned by third parties. The Floaters and the Jackups segments provide contract drilling. It owned and operated an offshore drilling rig fleet of 57 rigs, including two rigs under construction, with drilling operations around the world, as of December 31, 2016. As of December 31, 2016, its rig fleet included eight drill ships, 10 dynamically positioned semisubmersible rigs, three moored semisubmersible rigs and 38 jackup rigs. As of December 31, 2016, of its 59 rigs, 25 were located in the Middle East, Africa and Asia Pacific, 16 were located in North and South America (including Brazil) and 18 were located in Europe and the Mediterranean.

FINANCIAL RATIOS  of  ENSCO plc (ESV)

Valuation Ratios
P/E Ratio 1.5
Price to Sales 0.5
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 1.3
Price to Free Cash Flow 1.8
Growth Rates
Sales Growth Rate -31.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -80.1%
Cap. Spend. - 3 Yr. Gr. Rate -28.8%
Financial Strength
Quick Ratio 8
Current Ratio 0.1
LT Debt to Equity 59.9%
Total Debt to Equity 63.9%
Interest Coverage 5
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. -7.3%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. -9.9%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. -15.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 53.1%
Gross Margin - 3 Yr. Avg. 53.9%
EBITDA Margin 61.5%
EBITDA Margin - 3 Yr. Avg. 1.7%
Operating Margin 33.5%
Oper. Margin - 3 Yr. Avg. -16.6%
Pre-Tax Margin 36%
Pre-Tax Margin - 3 Yr. Avg. -18.7%
Net Profit Margin 32.1%
Net Profit Margin - 3 Yr. Avg. -30.9%
Effective Tax Rate 10.9%
Eff/ Tax Rate - 3 Yr. Avg. 2.1%
Payout Ratio 1.3%

ESV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESV stock intrinsic value calculation we used $1705 million for the last fiscal year's total revenue generated by ENSCO plc. The default revenue input number comes from 0001 income statement of ENSCO plc. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ESV stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8%, whose default value for ESV is calculated based on our internal credit rating of ENSCO plc, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of ENSCO plc.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ESV stock the variable cost ratio is equal to 24.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1559 million in the base year in the intrinsic value calculation for ESV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.8% for ENSCO plc.

Corporate tax rate of 27% is the nominal tax rate for ENSCO plc. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ESV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ESV are equal to 747.5%.

Life of production assets of 29.1 years is the average useful life of capital assets used in ENSCO plc operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ESV is equal to 10.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $8091.4 million for ENSCO plc - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 437.352 million for ENSCO plc is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of ENSCO plc at the current share price and the inputted number of shares is $2.0 billion.

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