IGas’s (LON:IGAS) new UK shale gas partnership with INEOS is an excellent and timely transaction for the AIM quoted firm, says City broker Canaccord Genuity.
Analyst Charlie Sharp highlights the transaction introduces the IGas operation to a large, strong, credible partner that is already an accredited operator.
He adds that IGas now has a more manageable but still significant exposure to the UK shale gas play.
At the same time the £30mln upfront cash payment is a “very significant” boost for the IGas balance sheet, Sharp said.
The analyst points out that the deal is also a reminder that many more heavyweight companies - INEOS now, in addition to GDF, Centrica, and Total - see considerable potential in the UK shale gas play.
Canaccord repeats a ‘speculative buy’ recommendation for IGas, though it reduces its target price in light of the subsequent change in the company’s on-paper resource value.
With a price target of 85p the broker implies some 230% to IGas’s current 25.5p share price.
“Despite the reduction in our total value and consequently in our target price to 85p per share, we think that is far outweighed by the combination of industry validation and valuation, the strengthened balance sheet, improved core valuation to 41p/sh (from 6p per share), and other intangible though substantial benefits,” Sharp said in a note.
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