Africa Oil Corp (TSX:AOI) valuation is seen substantially higher over at Stifel, with the stockbroker repeating a ‘Buy’ recommendation following this week’s financial update.
The Toronto-listed oil firm, which is in the process of consolidating ownership of its Nigerian operations, this week told investors it had recorded improved production and cash flow in its third quarter – seeing 17,900 boepd and $68.2 million respectively.
As a result, it upgraded its full-year cash flow forecast to $260 million, whilst noting its cash balance now stood at $136.1 million and it was debt free.
With Africa Oil’s corporate manoeuvring proceeding to completion, investors may turn attention toward exploration as the firm is advancing a farm-out process ahead of a proposed well in South Africa’s increasingly high-profile Orange Basin in 2025.
Stifel, meanwhile, sees Africa Oil’s current market value as an opportunity. The broker’s view of the value (its Net Asset Value estimate) is pitched at C$3.19 per share which is very much at odds with AOI’s market price in Toronto, of $1.81.
“Africa Oil has scale, a long-term free cash flow profile from high netback assets and a strong balance sheet that facilitates further consolidation," Stifel said in a note.
“On top of this, it boasts one of the most enviable exploration profiles of any E&P with its carried stakes in Namibia and South Africa.
“The operational performance so far this year, and the smart corporate decisions made are at odds with the share price weakness, presenting we believe an attractive opportunity for investors.”
Stifel noted that Africa Oil’s third-quarter performance was a “small beat” driven by a production performance that continued to “run ahead of the company’s original expectations”.
Looking ahead, the broker expects this to be further boosted by the Nigeria deal.
“Following the recent Nigerian Regulatory Commission approval the reorganisation that will increase Africa Oil's exposure to these cash-generative, high-potential assets is on track to complete in Q1/2025,” it added.