Diversified Energy Company PLC's (LSE:DEC, OTCQX:DECPF) latest asset divestment represented a smart deal yet the market is underappreciating both the transaction and the London-listed company’s value, that’s according to analysts at stockbroker Stifel.
The deal metrics meanwhile support Stifel’s view of DEC’s net asset value, analyst David Round highlighted in a note.
“The cash injection is also welcome and should improve confidence around liquidity,” the analyst said.
“In our view, this is a good example of the levers that a company with such an extensive portfolio, like Diversified, has at its disposal.”
DEC on Tuesday announced the completion of the transaction which saw the sale of producing assets in Appalachia to a special purpose vehicle (SPV), 20% owned by DEC, whilst generating US$200 million of proceeds.
The proceeds are being used to repay outstanding borrowings under its sustainability-linked revolving credit facility, resulting in a 12% reduction in DEC’s debt.
The implied valuation of the deal equates to a 5.7 times multiple of DEC’s expected hedged earnings (EBITDA) for the asset in 2024 – which was US$35 million.
"This latest transaction further demonstrates the attractiveness of Diversified's asset base that provides reliable production and consistency of cash flows,” chief executive Rusty Hutson said.
“At an attractive multiple, this transaction has provided a path for the company to unlock additional value from our assets, reduce our outstanding debt, and enhance our liquidity."
Stifel’s Round meanwhile underlined what is described as "positive valuation read through", highlighting that the broker’s estimate of DEC’s NAV amounted to 3,116p per share following the transaction.
For context, in London, DEC is currently priced at around 1,215p per share.
In December, the company’s equity joined the New York Stock Exchange also, with the same DEC ticker, in a move that management believes can facilitate broadening the company's access to high-quality equity investors, including domestic US funds.
Hutson described it as “an important milestone” and “a high-priority strategic initiative”.
“We expect the NYSE listing will facilitate increased ownership by US domestic funds over time,” Hutson said in a statement.
“The executive team plans to undertake additional investor engagement to enhance understanding and awareness of why we believe that as the natural consolidator of existing mature assets under our stewardship-based strategy, we are the RIGHT COMPANY at the RIGHT TIME.”
NYSE Group vice-chair John Tuttle, meanwhile, added: "We are thrilled to welcome Diversified Energy, a leading US domestic producer of natural gas, to our NYSE community.
“As the listing venue for many leading energy companies, Diversified Energy will feel right at home at the New York Stock Exchange."
The move to NYSE meanwhile comes amidst a notable step up in US onshore M&A which has seen a spectrum of deal sizes – notably today came the $4.5 billion acquisition of Callon Petroleum by APA Corp (which picks up 500,000 barrels a day of production from 120,000 acres of the Delaware portion of the Permian basin).
Other recent multi-billion-dollar deals have seen Exxon and Chevron commit fresh funds, in validation of the US onshore and shale industry.