Carpricorn Energy is tipped for some 52% upside, according to analysts at Barclays, who have repeated a bullish view following the company’s successful US$500mln share buy-back.
In fact, the company (formerly known as Cairn Energy) has a valuation that presently offers some 40,000 barrels of oil equivalent per day, “for free”.
Capricorn is now priced in line with its cash position and its slated contingent cash streams due from last year’s North Sea asset sales, Barclay’s analyst James Hosie said in a note, meaning that there’s presently no value attributed to the company’s production business in Egypt, its future payments from disposed Senagalese assets, or North Sea exploration projects which will see activity later this year.
Two wells are planned by Capricorn in the North Sea, as the UK government today revealed it will seek to push new projects in the North Sea, to boost energy security and offset imported gas supplies which ultimately come from Russia.
“Capricorn’s history is rooted in exploration and it has exploration activity in multiple regions during 2022: the UK North Sea, offshore Mexico and onshore Egypt,” Hosie said.
“The exploration budget of $100-110m is material compared with many of Capricorn’s peers, but can be funded from <20% of cash-in-hand (post shareholder returns).
“The activity in Egypt is part of what has become a new core area for the business. Mexico and the UK are examples of areas where the company could repeat its strategy of monetising exploration success ahead of production.”
Barclays rates Capricorn as ‘overweight’ and has increased its price target to 315p, versus a current price of around 209p.
This week Capricorn confirmed the completion of an oversubscribed tender offer saw many long-term shareholders take an exit, though some overhang is said to remain.
“We believe many shareholders viewed the successful conclusion of the eight-year Indian tax dispute as an appropriate time to exit and the tender offer provided an opportunity for an orderly sale,” the Barclays analyst noted.
“A lot has changed in those eight years, both in terms of both Capricorn’s portfolio and broader investor appetite for upstream oil and gas assets. That the tender offer was oversubscribed suggests that there is a stock overhang. This may take time to clear, but can be helped by the ongoing share buyback.”