Union Jack Oil PLC (AIM:UJO) looks more attractive in the wake of its peer and partner Egdon Resources PLC (AIM:EDR) receiving a takeover offer at a big premium, that’s according to Shore Capital.
Egdon yesterday announced it has received a cash offer to buy the company which valued the business at £26.6mln and was pitched at a 96% premium to the previous days price.
The read-across for Union Jack is “very positive”, analyst Craig Howie said.
It both boosts the value of Union Jack’s shareholding in Egdon and also bolsters the Wressle project, in which both companies have interests.
Craig Howie, analyst at Shore Cap, sees the value of its Egdon shareholding rise to around £830,000 up from a prior book value of around £500,000. Proceeds resulting from the share sale will add to Union Jack’s already strong cash balance, he added.
Moreover, the incoming partner to the Wressle project could accelerate further development of the outperforming asset.
“The offeror is a long-established US E&P business with an existing European footprint in the UK and Spain, and has been an investor in (and technical advisor to) Egdon for many years.
“In addition, to the provision of critical mass to its European portfolio, HEYCO cites the undervaluation of Egdon as a quoted company and the opportunity to create efficiencies and economies of a scale across an expanded footprint whilst adding experienced personnel and assets including the impressive Wressle development (in which UJO has a 40% non-operated interest).
Howie added: “shared assets in the portfolio will now come under the operatorship of a much larger and very well-capitalised operator, which could well accelerate the pace of activities at the flagship Wressle development and elsewhere.
“We not the bidder’s comments on the undervaluation of Egdon and wonder if the recommended offer is now a precursor to wider overseas M&A interest in players onshore UK.”
Commenting specifically on Union Jack, the analyst commented that Shore Cap continues to see “considerable running room” for the shares to rise.