Claren Energy Corp T.CEN

RE:Opening for trading in 13 mins

[Firesole3]

Canaccord

Coastal Energy Company (CEN : TSX : C$18.04) - Buy - Target:C$23.00

Deja Vu; maintain BUY rating and C$23.00 target  

 

Investment recommendation Media sources have reported that Coastal Energy has received an unsolicited offer of $20 per share from a private equity fund out of Hong Kong, contingent on due diligence. The company has responded to the offer by stating it "continuously evaluates opportunities to maximize shareholder value." Investment highlights In our view, the offer is intended to encourage the company to open a data room so that appropriate technical due diligence can be conducted. We believe that $20 per share undervalues the company, but we also are of the opinion that the initial offer was not meant to be the final offer. If the company opens a technical data room for due diligence purposes, this would signal that Coastal is seriously considering the opportunity. If Coastal does not provide access to its confidential technical data, we suspect that this offer will not proceed. Moreover, unless we see defined indications from Coastal, we would be highly sceptical that this offer is  being considered, especially since last year it appeared that Pertamina's $23/share offer was over before it began. Coastal is about to increase base production by bringing on new fields from both Malaysia and Thailand in the coming months. As such, we suspect that the company would be in a better position to maximize shareholder value in early 2014. We believe that the offer will bring much needed attention back to the company and maintain our Buy recommendation and $23 per share target. Valuation We use a DCF model to value Coastal, and estimate a 2013E NAV of C$22.80. This forms the basis of our C$23.00 target. Coastal currently trades at 5.2x and 3.8x our 2013E and 2014E EV/DACF forecast and at 1.18x and 0.87x its 1P and 2P values, respectively. Given its growing cash from operations, pending field developments, and projected return of 27%, Coastal remains our Focus List pick with a BUY recommendation.