Berenberg ups Harbour Energy to 'buy'

Berenberg upgraded Harbour Energy on Wednesday to ‘buy’ from ‘hold’ and lifted the price target to 360p from 280p as it said that cash flow supports higher returns.

Harbour Energy reported its FY23 results on 7 March and Berenberg said that most of the key figures were in line with those reported in the January trading update.

"Importantly, despite recent headlines, the company remains confident in completing its merger with Wintershall Dea, which will transform the portfolio in terms of scale and diversification," the bank said.

It said Harbour’s deal to take control of most of Wintershall Dea’s upstream portfolio adds significant scale to the business and diversifies the portfolio away from the UK’s challenging fiscal system.

"Based on our initial modelling, it significantly increases cash flow and potential for increased shareholder returns - publication of the prospectus (expected in Q2 2024) is likely to provide more detail and reduce some of the uncertainty in our initial forecasts," it said.

Berenberg noted that the company has guided to a 5% increase in dividends and said it expects the higher cash flow to support dividend per share growth over the medium term.

The bank said it was updating its model to incorporate FY24 guidance from both Harbour and Wintershall Dea, and give credit for tax deductibility of decommissioning provisions in its valuation.

"The net effect is a 29% increase in our price target to 360p and we upgrade our rating to buy (from hold)," it said.

At 1425 GMT, the shares were up 4% at 264.99p.