Kistos PLC's (AIM:KIST) Dutch appeal win sets the AIM-quoted oil and gas firm up for growth, according to Berenberg, which has a price target pitched at more than 100% north of the current price.
The European bank, which rates Kistos as a ‘buy’, highlighted in a note that the appeal success in the Netherlands has effectively added 40% to the company’s reserves and resources and, crucially, allows the company to progress plans for appraisal drilling in 2025.
“Assuming that the field is developed with first gas in 2028, along with some other minor modelling changes, means that we increase our risked NAV by 15% to €459 million and raise our price target to 480p (from 420p),” analyst James Carmicheal said in a note.
At the current price, 237.5p, Berenberg highlighted that the share trades at a lowly ratio of 2.2x earnings (EBITDA) and has a yield of 25%.
“In our view, Kistos has a solid growth portfolio that should provide management with the flexibility to pursue organic and/or inorganic growth, and also consider shareholder returns,” the Berenberg analyst added.
Carmicheal, meanwhile, noted that he expected limited spending on the Dutch project up until the appraisal drilling itself, so he leaves his capex estimate and financial forecasts for the current and next year untouched.
The bank forecasts Kistos will manage some €222 million of sales for 2023, to generate €151 million of EBITDA and €38 million of net profit – up from 2022 comparatives of €412 million, €361 million, and €73 million respectively, reflecting the normalisation of the pricing environment following last year’s extraordinary dynamic in European energy due to the war in Ukraine.
Modelling a Dutch success
Berenberg’s Carmichael sees the project costing some €300 million of net capex to deliver first gas production in 2028, and, achieve net peak production of 72 million cubic feet per day. This would generate around €138 million of peak cash flow in 2029.
The project would have a discounted net present value of €121 million and would see an internal rate of return of around 23%, the analyst estimated.
Significantly, Berenberg notes that the project would hold group production at around 20,000 barrels oil equivalent per day from 2025 as the separate Balder project, in Norway, begins a ramp-up through to 2031.
On Friday, Kistos announced it had won an appeal in the Netherlands, reversing a prior decision by the Dutch government not to extend the span of the M10/M11 licence.
The AIM-quoted firm owns a 60% stake in the licence, located on the Netherlands North Sea Shelf, which will now run for a further five years.
Kistos intends to apply for a permit to drill an appraisal well at the project that is presently estimated to host some 36mln barrels of proved and probable reserves plus 72mln barrels of contingent resources.
"This is very good news both for Kistos and for the Netherlands,” said executive chair Andrew Austin.
“It increases the potential for domestic gas demand to be met with domestic supplies, which has positive implications for CO2 emissions.
“Whilst the delay to the M10/M11 project has been frustrating, we are pleased that the right outcome has been achieved and look forward to working with the local municipalities to obtain the relevant permits to appraise the field.”
In London, Kistos shares are priced at 237.5p valuing the AIM-quoted company at £196.8 million.