Buy Energean and Gulf Keystone for upswing, Berenberg says

Buy Energean Oil & Gas in a strategy favouring quality companies for when the oil price starts to rise in the second half of 2020, Berenberg analysts recommended.

Berenberg initiated coverage of Energean with a 'buy' rating and a price target of 910p. The broker also recommended buying Gulf Keystone, Sweden's Lundin Energy and Kosmos Energy of the US.

The plunge in the price of oil has presented investors with a great opportunity, Berenberg said. If demand and confidence return in the second half of 2020 the companies that survive will outperform strongly, the broker said.

Investors must choose whether to back quality names for the long term or take a shorter-term bet on highly geared companies. There is too much uncertainty surrounding some of these companies and now is the time to focus on quality assets and balance sheets, Berenberg said.

"Now more than ever, stock selection is key, and positioning in those names that make it through will generate powerful outperformance," Berenberg's James Carmichael and colleagues wrote in a note.

Based on resilience to low oil prices, organic growth prospects and the reliability of asset bases, Energean and Lundin stand out while Kosmos has an attractive portfolio and a discount to NAV, Berenberg said.

Berenberg also initiated coverage of Gulf Keystone, which operates in the Kurdistan region of Iraq, with a 'buy' rating and a 210p price target.

"We initiate coverage of Energean which is building a diverse, gas-weighted production portfolio," Carmichael wrote. "In addition, contracted pricing insulates it from commodity price volatility, and the strong balance sheet will fund all planned capex.

"Despite uncertainty over payments, [Gulf Keystone] retains a strong, net cash balance sheet to enable continue expansion when the macro environment improves."