ENSCO PLC (NYSE:ESV) could be considered to be one of the few prospective value investments available on the market right now. Indeed, as I write, according to some broker estimates, Ensco is trading at a near 10% discount to its peers on an EV/revenue basis and a 25% discount to its peers on a P/B basis. Having said all of that, on an EV/EBIT basis, Ensco is actually trading at a near 25% premium to the average multiple of its peers.


So, depending on where you look, ENSCO PLC (NYSE:ESV) appears both expensive and cheap. However, with a 3.5% dividend yield, ten years of positive earnings, a P/E and P/B ratio below 15 and 1.5 respectively, Ensco looks to offer value Benjamin Graham would be proud of. The company’s debt ratio’s leave something to be desired but this can be forgiven to some extent as oil & gas drilling is a highly capital intensive industry. Still, a book value per share of $53.34 and TTM EPS of $5.50, indicate a Graham value of $81.20 per share, approximately 44% away from current levels.

Ensco’s valuation is low but growth is slow

ENSCO PLC (NYSE:ESV)’s fleet of drill ships and semisubmersible rigs (floaters) is the newest in the business. Indeed, with the demand for jack-up rigs set to fall over the next few years due to overcapacity, Ensco is well placed to capitalize on the demand for new, high-spec drill ships.

On the other hand, Ensco lacks its peers when it comes down to both backlogs and fleet expansion. With the day-rates on its jack-up rigs, (which make up 60% of Ensco’s fleet) set to decline over the next few years, it is likely that most of the company’s growth will come from its floaters and new capacity. However, day rates for high-spec drill ships are locked in for several years, costs are rising and margins are being squeezed. In addition, the company only has eight new rigs and ships on order to expand its fleet (11% fleet increase) and revenue.

Seadril set to increase fleet size

In comparison, the biggest offshore driller in the world by market capitalization, Seadrill Ltd (NYSE:SDRL), is set to increase the size of its fleet by 50% over the next few years. Meanwhile, sector peer Halliburton Company (NYSE:HAL) is set to increase EPS by 40% over the next two years.

What’s more, ENSCO PLC (NYSE:ESV) has an order backlog of $11 billion, locking in two-and-a-half years of revenue; based on the company first half revenue figure of $2.3 billion. Nonetheless, Seadrill Ltd (NYSE:SDRL)’s current backlog is worth 25 quarters of revenue, based on Q2 figures.

Ensco’s growth and slowdown

Unfortunately, according to current estimates, ENSCO PLC (NYSE:ESV)’s revenue and EPS are only set to expand rapidly this year but then growth is expected to slow significantly over the next three years. In particular, Ensco’s revenue for the next three years is expected to grow in the region of 7.8% annually, half of the 16.2% revenue growth expected this year.

So, overall ENSCO PLC (NYSE:ESV) may look to be a good value investment but the company’s growth and fleet expansion is much slower than that of its peers. Moreover, the oil & gas drill industry is highly competitive with day rates set to fall over the next few years as more capacity comes online.

Even though Ensco looks appealing at this level, I would rather wait and try to buy the stock when it falls below the value of its assets.