Canaccord upgrades Premier Oil to 'hold' after first half result

Canaccord Genuity upgraded its recommendation for Premier Oil to ‘hold’ from ‘sell’ and lifted its price target to 105p from 100p.

The brokerage reviewed the oil company’s position after its first half results and amid falling oil prices.

In a note to clients, analyst Charlie Sharp said Premier would be well positioned down to $60bbl, perhaps with minimal adjustments, cost improvements or asset sales.

However if the price of oil dropped to $50/bbl or lower debt profiles would continue increasing and the covenant issue could re-emerge.

“An oil price recovery would likely see a strong stock rally, but at current levels and ahead of the Solan field production delivery and successful ramp-up, we remain cautious,” Sharp said.

Canaccord said overall the company was in a good position regarding its balance sheet and had further opportunities to adjust if the oil price remained very low for an extended period.

The brokerage said Premier’s Solan project, which was expected to come on-stream at the end of the year, was the company’s most important asset by value and still had significant operational risk.

“Furthermore, the substantial and still increasing projected net debt together with the changing value of the tax losses under different oil prices, mean that the equity value is very sensitive to commodity prices.”