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2013.28.03 Oil & Gas Research Department Eurasia Drilling Co. 4Q12 preview – results and outlook known – but any surprises? Eurasia Drilling Co. Ticker Current price, GDR (as of March 27) Target price (GDR) Upside, % Recommendation Market capitalization Common shares outstanding, mln Common/GDR Free float EDCL LI $35.90 $40.00 12% OVERWEIGHT $5,264 mln 146.8 1 32% OFS companies performance vs. RIOB Index, YTD 150% 100% 50% 0% -50% EDC Integra Mar 13 Jan 13 Nov 12 Sep 12 Jul 12 May 12 Mar 12 Jan 12 -100% C.A.T. oil RIOB Index Source: Bloomberg Eurasia Drilling Company (EDC) is scheduled to release 4Q12 US GAAP results on Tuesday, April 2, followed by a conference call the same day. Summary results have already been published and we might see only a marginal surprise on the EBITDA line. Moreover, the company has already published its 2013 outlook, which makes the conference call not that interesting, as the company historically has not provided an outlook beyond one year. The company needs to show some surprise to move the market, but we doubt it will. 4Q12 – low season in drilling and margins. Historically the fourth quarter has always been among the weakest for EDC and drillers in general – the year-end is near and rigs are starting to move to new locations. 4Q12 was no exception for EDC – drilling came in at 1.47 mln meters, down some 16% QoQ but still up 38% YoY. Drilling in 4Q11 was down 18% QoQ, so 2012 ended on a pretty good note. Top-line numbers are known. EDC has already disclosed guidance for revenues and the EBITDA margin for 2012, so we hardly expect a surprise on these lines. However, the company may still surprise on EBITDA, as guidance assumed a pretty low (20%) EBITDA margin for 4Q12, down 1 pp YoY. Moreover, the net income figure does not really matter, as the company has already announced dividends for 2012 at $0.7 per share. Guidance for 2013 has also been given. Revenues were guided to grow 12.5% YoY to $3.6 bln, with the EBITDA margin expanding 0.5 pps to 24.8%. The company also said it expects drilling volumes to be slightly higher in 2013. The main source of revenue growth will be workover and sidetracking. Third offshore rig to begin operating in 3Q13. The third offshore rig will contribute significantly in 2H13 and we see the main upside to EDC’s 2013 forecast mainly in the offshore. In our view, the company’s revenue and EBITDA projections do not account for possible contributions from the third offshore rig. This is in line with the historical policy of EDC, a company that has always been extremely cautious with its forecasts. Good news is already priced in; surprise needed. We doubt that EDC’s 4Q12 results will be able to boost the share price. The numbers for 2012 were already given and guidance for 2013 is unlikely to be massively upgraded. The company needs to provide some real surprise to trigger a further re-rating of the stock. We do not expect the results or conference call to have a significant impact on the stock, but EDC remains on our list of top picks, as we expect the company to start outperforming in 2H13. EDC 4Q12 US GAAP preview, $ mln Revenues EBITDA EBITDA margin 4Q12E 798 163 20% 3Q12 838 242 29% 4Q11 710 150 21% QoQ -5% -33% YoY 12% 9% 4Q12C 815 164 20% Source: company, Bloomberg consensus, Gazprombank estimates Alexander Nazarov +7 (495) 980 43 81 [email protected] Copyright © 2003-2013 Gazprombank (Open Joint-Stock Company) All rights reserved 1 Research Department +7 (495) 287 6318 Gazprombank HQ: 16/1 Nametkina St., Moscow 117420, Russia (Office: 63 Novocheremushkinskaya St.) Research Department Alexey Demkin, CFA Acting Head of Research +7 (495) 980 43 10 [email protected] Equity Research Equity Strategy Erik DePoy +7 (495) 983 18 00 ext. 54440 Andrey Klapko Alexander Nazarov Fixed Income Research Banking Oil & Gas Andrey Klapko Ivan Khromushin +7 (495) 983 18 00 ext. 21401 +7 (495) 980 43 89 Alexander Nazarov Alexey Demkin, CFA Head of FI +7 (495) 980 43 10 [email protected] +7 (495) 980 43 81 Metals & Mining Transport & Industrial Strategy Natalia Sheveleva Aleksei Astapov Alexey Todorov +7 (495) 983 18 00, ext. 21448 +7 (495) 428 49 33 +7 (495) 983 18 00 ext. 54443 Chemicals Utilities Telecoms, Media & IT Credit research Aleksei Astapov Dmitry Kotlyarov Sergey Vasin Yakov Yakovlev +7 (495) 428 49 33 +7 (495) 913 78 26 +7 (495) 983 18 00 ext. 54508 Market and equity technical analysis Consumer & Retail Vladimir Kravchuk Vitaly Baikin +7 (495) 983 18 00 ext. 21479 +7 (495) 983 18 00 ext. 54072 Quantitative analysis, IT development Timur Semenov Production team +7 (495) 287 61 00 ext. 54424 +7 (495) 983 18 00 ext. 21417 Ekaterina Zinovyeva +7 (495) 983 18 00 ext. 54442 Dmitry Selivanov Pavel Mishachev Tatyana Andrievskaya +7 (495) 983 18 00, ext. 54472 +7 (495) 287 62 78 Equity product department Debt product department Konstantin Shapsharov Managing Director, Head of Department Pavel Isaev Head of DPD +7 (495) 983 18 11 [email protected] + 7 (495) 980 41 34 [email protected] Equity Sales & Trading Sales Maria Bratchikova +7 (495) 988 24 03 Artyom Spasskiy +7 (495) 989 91 20 Svetlana Golodinkina +7 (495) 988 23 75 Andrey Malyshenko Trading Debt capital markets Fixed Income Sales & Trading Alexander Pitaleff, Head of equity trading Igor Eshkov Head of DCM, ED Andrei Mironov Head of FI S&T, ED +7 (495) 988 24 10 + 7 (495) 913 74 44 +7 (495) 428 23 66 Denis Voynikonis Sales Vera Yaryshkina +7 (495) 983 74 19 Artyom Belobrov +7 (495) 988 24 11 Ilya Remizov +7 (495) 983 18 80 Dmitry Kuznetsov +7 (495) ) 428 49 80 Trading Elena Kapitsa +7 (495) 988 23 73 Electronic trading department +7 (495) 988 24 92 Yury Tulinov +7 (495) 980 41 82 Sebastien de Prinsac +7 (495) 989 91 28 Roberto Pezzimenti +7 (495) 989 91 27 Dmitriy Ryabchuk +7 (495) 719 17 74 Gazprombank Invest (MENA) S.A.L. Gazprombank’s building, Dbayeh, Lebanon Maxim Maletin Head of Electronic trading +7 (495) 983 18 59 [email protected] Hrant Balozian Head of Investment Banking Rawad Hakme Head of Capital Markets Racha Saadeh Capital Markets Associate +961 4 403888, ext. 121 [email protected] +961 4 403888, ext. 123 [email protected] +961 4 403888, ext. 122 [email protected] Copyright © 2003-2013. Gazprombank (Open Joint Stock Company). All rights reserved This report has been prepared by the analysts of Gazprombank (Open Joint Stock Company) (hereinafter – Gazprombank) and is based on information obtained from public sources believed to be reliable, but is not guaranteed as necessarily being accurate. With the exception of information directly pertaining to Gazprombank, the latter shall not be liable for the accuracy or completeness of any information shown herein. All opinions and judgments herein represent solely analysts’ personal opinion regarding the events and situations described and analyzed in this report. They should not be regarded as Gazprombank’s position and are subject to change without notice, also in connection with new corporate or market events that may transpire. Gazprombank shall be under no obligation to update, amend this report or otherwise notify anyone of any such changes. The financial instruments mentioned herein may be unsuitable for certain categories of investors. This report should not be the only basis used when adopting an investment decision. Investors should make investment decisions at their own discretion, inviting independent consultants, if necessary, for their specific interests and objectives. The authors shall not be liable for any actions resulting from the use of this report. Any information contained herein or in the appendices hereto shall not to be construed as a solicitation or an offer to buy or sell any securities or advertisement, unless otherwise expressly stated herein or in the appendices hereto.