Nomura upgrades Premier Oil to 'buy'

Nomura upgraded Premier Oil to ‘buy’ from ‘neutral’ and lifted the price target to 80p from 75p, saying the E.ON acquisition is value accretive and the stock is "one for the oil bulls".

The bank outlined three reasons to turn buyers.

It said its analysis of the data for the pending E.ON deal suggests it is value accretive and positive to Premier’s debt covenants.

Nomura said the re-negotiation of partner capex carry in the Falklands reduces future debt.

Finally, it pointed out that the two factors mentioned above increase the duration and value of the call option that Premier shares offer investors to higher oil prices.

“The downside case is an equity valuation that is negligible if the forward curve materialises, which should be well known. However, we also see an option with a payoff of over 5x in the event of higher prices,” said Nomura.

“With increasing capacity to survive current prices for at least 12 months, we think the risk-reward from a broader portfolio basis (either as a hedge to an underweight Energy position or as an outright bull on oil prices), is worth taking.”

The upgrade by Nomura was made before the oil and gas exploration and production company announced on Monday that amendments had been made to the terms of its deal with E.ON and the stock resumed trading.

Nomura released another note after the announcement, saying that even at the level the shares have resumed trading on Monday, around 40p, the risk/reward is attractive for those with a higher risk appetite and a constructive view on crude prices.

At 1147 GMT, Premier shares were up 108% to 39.50p.