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Genel upgraded, Investec impressed by ‘internally funded’ growth potential

Last updated: 13:54 09 Dec 2014 GMT, First published: 14:54 09 Dec 2014 GMT

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Genel Energy (LON:GENL) has outstanding production growth potential, says Investec, but that’s not the reason the broker has upgraded the Kurdistan focussed oil firm to ‘buy’ from ‘hold’.

Investec analyst Brian Gallagher says Genel’s new cash dynamics for its Miran and Bina Bawi gas assets, which are the subject of renegotiated terms.

This is a game changer, according to the broker.

In a note Gallagher said: “This is what drives our upgrade – growth that can be internally funded. A rare dynamic in the E&P sector!”

He adds that Genel’s growth was “always there” it just wasn’t easily funded before.

An apparent question mark over funding and a lack of clarity over payments for oil exports out of Kurdistan meant Investec has avoided Genel for a year, Gallagher said, but there have been breakthroughs for both issues in recent weeks.

Indeed, he describes the first payments for piped exports as Genel’s most important development in the past 24 months.

“Despite being in development mode we now model Genel as modestly cash positive until first gas at Miran/BB in 2018/19,” the analyst said.

“This leaves scope for dividends in 2015 as Taq Taq and Tawke volumes continue to ramp up and further debt is potentially introduced into the capital structure. 

“Most importantly though, Genel can now internally fund its growth.”

Investec now rates Genel as a ‘buy’ with a 920p price target, some 38% higher than the current price of 650p.

“Genel in its current form is how we like our E&Ps. It is focussed to one region, fully funded and well managed. 

“Its asset footprint is also strategically important regionally. We believe bigger industry players share the same tastes.”

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