Credit Suisse upgrades Ophir Energy ahead of December update on Fortuna financing

Credit Suisse believes the market has become too pessimistic on Ophir Energy's ability to reach a financing deal with its potential Chinese investors in order to progress on Fortuna.

With a delay in Ophir's first-investment-decision already priced-in and following 10% underperformance in the shares quarter-to-date, Credit Suisse said it now saw an "attractive" risk-reward trade-off in the shares; hence its decision to upgrade its recommendation for the same from 'neutral' to 'outperform'.

According to the Swiss broker's analysts, market pricing was currently implying only a 50% chance of success.

"With an offtake agreement already in place, securing project financing may help to further de-risk the project to 90% we carry in our NAV," Credit Suisse added.

Furthermore, the broker hailed the company's decision to search for alternate project financing options in parallel to its talks with those Chinese investors.

Ophir was set to update the market in December and was aiming to wrap-up the necessary talks on project financing by mid-month with a view to taking FID in the first quarter of 2018.

Nonetheless, missing that schedule was a near-term risk which might potentially push-out FID and negatively impact management's credibility.

Despite all of the above, Credit Suisse pared its target price from 85p to 80p after pushing out the expected date for finalising Fortuna to the end of 2021, assuming a higher cost of debt and after increasing provisions for exploration write-offs and selling, general and administrative expenses at the corporate level.

To take note of as well, even at the new target price the shares were trading on five times their estimated 2019 EV/EBITDAX multiple versus 5.5 for the broader sector.