Aban Offshore gained 33.8 per cent during the week ended August 28, after the company announced the deployment of four of its seven idle jack-up rigs, three in West Asia for three years and one in Latin America for over 25 months. Revenue from the West Asian contract is expected to be Rs 2,925 crore and Rs 446 crore from Latin America.
The stock gained 27 per cent on the day of announcement and remained steady thereafter on profit booking. On the F&O segment, the September futures of Aban Offshore is trading at a premium to the spot carrying an open interest of 1.62 million shares, up almost 60 per cent in three trading days, indicating a long build-up.
According to analyst at Religare Research, the stock is attractively valued at a price to earnings ratio of 2.9 times of FY11 estimated earnings, so fresh upside is possible from the current level of Rs 1,571. The Citigroup Asia-Pacific Research has put Aban Offshore on the buy list with medium risk from its earlier sell list, with a new target price of Rs 1,550, which has already been achieved.
According to an equity analyst at JM Financial, based on 4 long-term contracts, Aban is in a good position to address its concerns over high leverage, and would now be comfortable to take advantage of increasing spot rates with its other 3 idle assets. It can now fairly be assumed that the company would be able to contract most of its remaining idle assets.
According to an Edelweiss analyst, the announcement of the West Asian contracts at $185,000 per day was a positive surprise. Edelweiss has increased revenue estimates for the company by 2.5 per cent for 2009-10 and 19.2 per cent for 2010-11, to incorporate the new contracts. Analyst also assumed two additional assets to be deployed by 2011, a further boost to its profit. Net profit of the company is expected to increase 61 per cent in 2010 and 16 per cent in 2011.