Diversified Energy Company PLC (LSE:DEC, OTCQX:DECPF) (DEC) is delivering consistent and reliable results and its shares are at a substantial discount compared to the oil firm’s American peers, according to analysts at stockbroking firm Cavendish.
In a note, following DEC’s most recent financial results released last week, analyst James McCormack retained a 150p price target – suggesting around 100% upside to the share’s current price of 73.45p.
McCormack highlighted a potential pathway to DEC securing a more competitive valuation as it heads for a stock market listing in New York.
“The board believes that the US listing will raise the group’s profile in the US, broaden the company’s potential investor base and increase its research coverage,” the analyst said.
“The dual list will align DEC with its US natural gas focussed peers and provide access to a larger pool of energy-specific investors, in turn providing an opportunity for DEC to narrow the valuation gap to its peers.”
McCormack added: “DEC trading at a c2.0x lower multiple to its US peers highlights the current dislocation and structural issues in the UK market, which are particularly prevalent in the small-cap sector … a listing on the NYSE could provide an opportunity for DEC to narrow this valuation gap.”
Focusing on DEC, the analyst noted that earnings (adjusted EBITDA) margins are healthy at 52% in the third quarter, benefiting from cost controls, and the company had US$135 million of "current liquidity".
Production was meanwhile "in line" with guidance at 134,000 to 138,000 barrels per day and McCormack highlighted a supportive commodities market.
“Natural gas storage levels have normalised on the back of record high natural gas fired power generation, strong LNG exports and US natural gas exported through pipelines to Mexico,” he said.
“At the same time, we anticipate US natural gas production growth will be limited in the coming months following the dramatic decrease in natural gas drilling rigs.
“We believe this strong fundamental backdrop will support and strengthen the forward natural gas curve.
“Further, with the start-up of an additional 2.7Bcf/d of nominal LNG export capacity by the end of 2024, we see increased premiums for DEC’s Central Region assets relative to NYMEX.”