Canaccord Genuity slightly lowers target price on EnQuest

Analysts at Canaccord Genuity slightly lowered their target price on exploration and production company EnQuest from 40.0p to 35.0p on Monday as it pondered what exactly the stock's investment thesis was following its admittedly "solid" trading update.

Canaccord Genuity stated EnQuest's recent trading update showed, unsurprisingly, operational performance in line with the company's November update, and while year-end net debt was "a little higher" than its had anticipated and full-year production guidance "a little lower", it said these seemed to be "quibbles rather than significant detractors".

The Canadian bank highlighted that crucially, EnQuest strengthened its balance sheet "significantly" in 2022 through a combination of "solid production delivery and high oil prices", reducing net debt at year-end to $720.0m.

"We expect that trajectory to continue based on current production guidance, modest capital investment plans, and good control of operating costs, and in spite of the UK EPL tax. As a result while the company still has significant indebtedness, it is no longer, in our view, the problem it once was. All well and good," said the analysts.

However, Canaccord highlighted that though the financials had been "effectively stabilised" and said the stock "still looks good value", the investment rationale was partly based on the possibility of new high-impact market catalysts.

"The macro environment is tougher - lower oil prices, higher costs, and the natural risks concerning UK oil and gas taxation - and the asset base now looks to be in long-term decline. To provide significant market impetus, we think the company will need to provide meaningful shareholder returns (for now we think that is unlikely until 2024), introduce inorganic growth (which seems more likely in 2023), or a company sale (the tax loss pool plus Kraken could still be an appealing combination to an acquiror)," said Canaccord, which reiterated its 'speculative buy' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com