Danske Bank shoots down Seadrill's target price

The bank has lowered Seadrill's target price based on the expectation that the drilling company will have difficulty refinancing its debt. Pareto follows suit and downgrades its outlook for the strained drilling sector.

Photo: PR/Seadrill

Danske Bank analysts reduce Seadrill's target price from NOK 90 (USD 9.9)  to NOK 5, and the bank changes its recommendation from buy to sell.

This takes place first and foremost due to projections that the John Fredriksen-controlled drilling outfit will have difficulty in refinancing its debt, which will mature in 2022, report several Norwegian media referring to Bloomberg.

In July last year, Seadrill implemented an extensive restructuring also entailing its billions in debt. However, recent higher oil prices have thus far not benefited the hungry drilling firms, and analysts thus project that there will be stiff competition for the drilling companies, including Seadrill, to ensure the cash flow need to lure investors. 

Seadrill Chief Executive CEO Anton Dibowitz acknowledged that the drilling sector has disappointed in that regard while speaking Pareto Securities' conference in Oslo earlier in September:

"The fundamental recovery in the market and what's happening in the equities are obviously completely dislocated. But I don't think it is unfair, because as an industry we have let down equity investors over and over again and have said that the recovery is going to be next year," said Dibowitz at the time.

"This has been a long downturn and the recovery is underway, but the pace of it still remains to be seen and I think it is rational for investors to say that they want more confidence that we are well into the recovery before they start putting back capital in to the market," he said later in an interview with ShippingWatch.

Although Pareto Securities is markedly more optimistic than Danske Bank. In a new report, Pareto reduces the drilling companies' target prices in a broad move but at the same time maintains its 'buy' recommendation.

Pareto, which operates with a target price NOK 55, writes about Seadrill:

"We believe that the market is underestimating the value of unconsolidated subsidiaries in the [Seadrill] system. Furthermore, with respect to its ability to refinance upcoming debt maturities, we argue that the company's underlying debt servicing ability has improved drastically on the back on a broader market improvement since its emergence from Chapter 11.

Seadrill's equity has depreciated by around 75 percent on the Oslo stock exchange so far this year.

English Edit: Daniel Frank Christensen

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