Westhouse downgrades Afren to 'sell', cuts target by 97.8%

Afren has had a tough past 12 months: it dismissed a number of top executives due to unauthorised payments and has faced operational issues, whilst contending with the recent collapse in crude prices.

Investors are also having to deal with the uncertainty surrounding a potential takeover offer from Nigerian firm Seplat, with a firm approach having not yet been made.

What’s more, Afren’s share price plummeted on Tuesday after the company said it needs funding in excess of its market capitalisation and wants to defer payments due on its debt to resolve liquidity problems.

Westhouse said: “We downgraded Afren to ‘neutral’ in September after the suspension of the chief executive, chief operating officer and two associate directors and flagged the risks of owning Afren in its current state.

“Since then, the company has continued to disappoint the market – operational delays, the downgrade of Barda Rash reserves and resources and now the inability to service its debt.”

The broker said that, on its current estimates, Afren will breach its financial covenants with its banks this year if capital expenditure levels are maintained.

“It all hinges upon successful debt re-negotiation and a potential equity raise means a material dilution to current shareholders,” Westhouse said.

Afren was trading 19% higher at 5.95p by 12:00 on Wednesday after a heavy drop the previous session.