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Touchstone Exploration Inc: THE INVESTMENT CASE

Shore Capital continues to see “considerable running room” for Touchstone Exploration shares despite circa 40% jump this year

The City broker’s bullish view comes after its analysts upgraded their sum-of-the-parts valuation for the Trinidad-focused oil producer by circa 20% to 35p, up from 29p previously
Trinidad drilling
Touchstone shares were trading at 17.9p on Monday afternoon, up over 5% on last Friday’s close

‘House broker’ Shore Capital continues to see “considerable running room” for Touchstone Exploration Inc. (LON:TXP) (TSX:TXP) shares despite a circa 40% price rise in the year-to-date.

The City broker’s bullish view comes after its analysts upgraded their sum-of-the-parts valuation for the Trinidad-focused oil producer by circa 20% to 35p, up from 29p previously, having raised their earnings and risked net asset value (NAV) estimates.

WATCH: Touchstone Exploration's drilling programme continuing to provide significant growth

Touchstone shares were trading at 17.9p on Monday afternoon, up over 5% on last Friday’s close.

In a note to clients, the ShoreCap analysts said: “The ongoing drilling programme has translated into robust production growth and, with daily production having surpassed 1,800bopd (barrels of oil per day) prior to the end of H1, we are confident that 2,000bopd will be exceeded before the year is out.”

The analysts said that, while their model comprises various moving parts, in simple terms, they have maintained their full-year 2018 average daily production forecast at 1,800 bopd, but an upgraded oil price deck helps drive an earnings per share (EPS) upgrade to C$0.03, up from C$0.02.

They added that their newly introduced forecasts for full-year 2019 indicate EPS of C$0.05 next year, which assumes production at 2,200 bopd, which the analysts believe is a conservative estimate given Touchstone’s ongoing programme of drilling and workovers.

“Longer term, we believe that (up to) 5,000 bopd remains eminently achievable,” they added.

The analysts said that despite foreign exchange movements and placing-related dilution, their risked NAV estimate for Touchstone has been upgraded to 35p a share, reflecting increasing visibility on drilling at the high impact Ortoire block in Trinidad.

They added; “We see strong scope for further upgrades to this figure as reserve additions come through and plans for drilling at Ortoire progress.”

WATCH: Touchstone Exploration ' comfortably ahead of production expectations'

Despite its small-cap status, the ShoreCap analysts said, Touchstone is one of the most active independents operating onshore Trinidad, enjoying a “Top Four” position - with realistic ambitions to become the leading player behind state oil company Petrotrin.

Since its dual listing on AIM last year, they added, they have highlighted the Calgary, Canada-based firm as one of the most compelling situations on their E&P coverage list.

The analysts noted that their recent site visit to Trinidad coincided with the company’s AGM there last month and “provided us with even greater confidence in the business, which has successfully become a material producer with a first-rate operating capability and high levels of local content.”

They said “With 1,800bopd having been reached nicely ahead of “halftime” this year, we believe that 2,000 bopd is very likely to be exceeded prior to year-end and maintain a high level of confidence in our FY2018F average daily production forecast of 1,800 bopd.”

The analysts concluded: “We see strong scope for further Risked NAV upgrades as a result of 3P reserve additions and increasing visibility on drilling plans for the high impact Ortoire block, where we anticipate a ramp-up in exploration activities in FY2019.” 

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