Credit Suisse upgrades Premier Oil on valuation

Credit Suisse upgraded Premier Oil to ‘neutral’ from ‘underperform’, noting the big drop in the share price since it initiated coverage of the stock in December.

In addition, the bank pointed to Premier’s agreed acquisition of E.ON’s UK North Sea assets.

CS said the assets are cash generative, even at current oil and gas prices and would allow Premier to accelerate the utilisation of its UK tax loss position, which stood at $3.5bn at end-2015.

Credit Suisse said Premier had outlined three criteria for a deal before the E.ON acquisition: utilisation of its UK tax loss position, accretive to lending covenants and rapid payback.

The transaction with E.ON fits all three.

The bank said that while no guidance was given as regards specific cost synergies, these are likely to include a headcount reduction programme given the duplication of roles between E.ON and Premier's UK businesses.

CS cut its target price on Premier to 25p from 70p. It highlighted that the stock’s valuation is very sensitive to oil prices, so the TP has been set by taking the equally-weighted average of three Premier net asset value scenarios using Brent long-term prices of $65 a barrel, $70 and $75.

Premier shares have been halted from trading as the proposed acquisition is classified as a reverse takeover by the UK regulator.