IC Post
Hedges still working for Ithaca Energy
TIP UPDATEIthaca Energy Inc (IAE)
Our previous tip
- WE SAIDBuy
- WHEN16 May 2013
- PRICE176p
- TIP PERFORMANCE TO DATE-62%
With the 'recovery' in oil prices taking longer than many had forecast, investors in Ithaca Energy (IAE) would have been hoping for some encouraging news on borrowings, hedging and operating costs at the half-year mark. Fortunately, the oil producer delivered on all three fronts, with net debt down by almost a quarter from last year's peak to $606m (£469m), and favourable hedges in place ahead of an expected rebalancing in the price of Brent crude.
These well-placed contracts meant the price booked for the majority of the 9,378 barrels of daily production (boepd) was $59, leading to $58m in cash gains, while operational costs declined 27 per cent year on year. Costs could drop further to below $20 a barrel once the Stella field comes online and daily production increases to between 20,000-25,000 boepd.
First hydrocarbons from the long-awaited project are expected at the beginning of November, three months after the FPF-1 floating production unit sailed away from the Remontowa shipyard in Poland. Ithaca would have wanted this to be sooner, although the delay meant a bonus payment due to contractor Petrofac has halved to $17m and won't be made until 2020.
Broker finnCap expects an adjusted pre-tax loss of $154.1m this year and adjusted EPS of 10.8¢, against losses of $516.6m and 35¢ in the 12 months to December 2015.
| ITHACA ENERGY (IAE) |
| NET ASSET VALUE: | 195¢ | NET DEBT: | 76% |
| ORD PRICE: | 66p | MARKET VALUE: | £273m |
| TOUCH: | 65.8-66.5p | 12-MONTH HIGH: | 76p | LOW: 16p |
| DIVIDEND YIELD: | nil | PE RATIO: | na |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| £1=$1.29 |
| 2015 | 130 | -26.8 | 4.0 | nil |
| 2016 | 57.8 | -44.1 | 2.0 | nil |
| % change | -55 | - | -50 | - |
IC VIEW
Our long-running buy call (176p, 16 May 2013) should of course be seen in the context of the huge drop in oil prices. But we believe the current momentum bodes well, and isn't justified in the share price's 56 per cent discount to book value. Accordingly, we continue to rate the shares a recovery buy.
Last IC view: Buy, 32.8p, 24 Mar 2016