Broker Sanlam has maintained its upbeat stance and 57p per share price target on Falkland Oil and Gas (LON:FOGL).
The broker argues that for the South Atlantic explorer to be valued at less than its cash holdings is too harsh a rating.
Falkland’s latest results showed a headline cash balance of US$219mln. Sanlam expects the company to spend around US$60mn on its net share of seismic costs (partially funded by the US$20mn due from partner Edison).
“Given the prospectivity of the Southern and Eastern Falkland Islands Basins (proven petroleum systems) we are comfortable assuming that the 3D seismic's value equates to its cost for the purpose of establishing our target price,” the broker added.
“Even as cash is partially converted into seismic data (which we value at cost), our target price will be based on the year-end cash balance and a US$71mn estimate of net drilling costs for Loligo (a potentially giant gas field).
“The cash balance amounts to 43p/share, while the value of Loligo based on past drilling costs amounts to US$13.6p/share. Other minor balance sheet adjustments are made (1.1p/share) to arrive at our target price.“
Sanlam has maintained its ‘buy’ recommendation, adding that the market is undervaluing how efficient Falkland Oil has been with its cash since 2008.
Shares today rose 1p to 27.25p.