Canaccord raises target price on Vaalco

Analysts at Canaccord Genuity upped their target price on exploration and production firm Vaalco from 155.0p to 210.0p on Wednesday following the group's "transformational transaction".

Canaccord said it had chosen to up its target price on Vaalco after its recent acquisition of another 27.8% working interest in the Etame Marin Licence offshore Gabon from Sasol for $44.0m looked set to almost double total group production to 9,300 barrels of oil per day net revenue interest and increase 2P reserves to 17.5m barrels.

"We think this transaction makes very good sense from multiple angles," said Canaccord.

The Canadian bank stated the combination of greater company size, the geared impact on free cash flow generation, reduced breakeven pricing, increased upside potential from both Etame Marin and DE-8, and Vaalco's "deep understanding" of Etame Marin and Gabon were all positives.

Furthermore, Canaccord now expects Vaalco to be able to complete the transaction entirely from cash, with a net cash payment at completion of $36.0m after adjustments, compared with net unrestricted cash at the end of 2020 of $44.0m and no debt.

"We regard that as a very attractive acquisition price given the benefits associated with the transaction (above), and bearing in mind that the sale by Sasol was the result of a strategic shift and the sales process was competitive."