RBC Capital upgrades Energean to ‘outperform’

RBC Capital Markets upgraded Energean on Friday to ‘outperform’ from ‘sector perform’ and hiked the price target to 1,075p from 800p.

The bank said its valuation and earnings forecasts have been updated to reflect the impact on the newly-completed Edison E&P acquisition and recently proposed acquisition of the minority (30%) stake in Energean Israel from private equity backer Kerogen Capital.

RBC said Energean remains in a transition phase as it integrates the Edison portfolio, refinances the $1.45bn project finance facility, brings the Karish gas field onstream and generates the free cash flow required to underpin a maiden dividend.

"We believe the risks are to the upside in this educational phase, and this is reflected in our recommendation upgrade," it said.

RBC noted the development of the Karish field is being undertaken on a fixed cost basis and the majority of the company’s gas sales contracts include floor prices that ensure a minimum price. As a result, Energean’s oil price linkage is minimal and its financial outlook is dominated predominantly by the pace of delivery.

"The company’s Eastern Mediterranean-focus exposes the business to some security risks; we expect the pricing of this summer’s refinancing/bond issue to provide a useful bellwether," it said.

At 1100 GMT, the shares were up 4.6% at 912.70p.