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Cenkos repeats ‘buy’ for Diversified Gas & Oil amid latest complimentary deals

Cenkos said the transaction is anticipated to be accretive and value-enhancing for DGOC.

Diversified Gas & Oil PLC - Cenkos repeats ‘buy’ for Diversified Gas & Oil amid latest complimentary deals

Stockbroker Cenkos repeated a ‘buy’ recommendation for Diversified Gas & Oil PLC (LON:DGOC) as the acquisitive London-listed firm picked up more assets in the United States.

In an after-hours statement on Monday the company announced its latest deal for ‘certain upstream and midstream assets from a US-listed oil and gas company’, and, this morning the firm secured US$85mln of new equity funding to support the deal.

It is paying US$125mln for the assets, adding to the separate US$110mln Carbon Energy asset acquisition announced last month.

READ: DGOC to raise US$85.8mln to support latest acquisitions

Analyst James McCormack, in a note, highlighted that the assets are complementary and are located within the company’s footprint.

“The well packages possess a high working interest and net royalty interest, enabling the company to maintain and reduce costs, whilst receiving the majority of the economic benefits,” the analyst said.

“Located proximal to DGO’s existing wells and fields, economies of scale allow DGO to leverage resources to generate synergies and reduce unit costs.”

McCormack added: “The nature and structure of the financing, paired with the estimated returns from the assets, results in a value-accretive transaction that is largely leverage neutral, with a projected post-acquisition leverage of 2.3x.

“The transaction is anticipated to be accretive and value-enhancing at the per share level, with our calculations estimating a 14% net adjusted EBITDA share accretion.”

The analyst noted that the company is well-positioned to take advantage of opportunities in the sector, and, suggested yet more deals may follow.

“With many of its peers looking to offload non-core assets, DGO is able to acquire assets at attractive valuations, removing costs and driving operational efficiencies to generate long term cash flow and ultimately returns to shareholders,” he said.

To raise US$85.8mln of new capital the company is selling some 64.28mln new shares each priced at 108p, just a 1.6% discount to yesterday’s average mid-market price.

The shares are being sold to existing and new shareholders.

The company said it consulted with major shareholders prior to the funding and it has respected the principles of pre-emption as far as possible through the share allocation process.

Quick facts: Diversified Gas & Oil PLC

Price: 109 GBX

LSE:DGOC
Market: LSE
Market Cap: £771.04 m
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