Investors Chronicle Update North Sea oil specialist (IAE) shares slipped nearly 4 per cent on the day these broadly in-line half-year figures appeared. Production averaged 14,300 barrels of oil-equivalent per day (boepd) in the second quarter, after including a 2,500-boepd contribution from the newly acquired Sumitomo assets. Full-year production guidance remained unchanged, too, at 13,500-15,500 boepd, although annual maintenance work scheduled for this quarter will leave Ithaca needing a strong fourth-quarter performance.
Unfortunately, reported profits were hit by $7m (£4m) non-cash hedging losses, decommissioning costs and a lower-than-expected tax credit. But cash flow from operations remained robust in the first half at $102m, compared with $100m a year earlier. Moreover, the all-important Greater Stella Area (GSA) development project - which should double Ithaca's hydrocarbon production - remains on track for first oil in mid-2015. Drilling operations on the fourth Stella development well started in July, while a fifth well, targeting a chalk reservoir that sits beneath the principal reservoir, will be drilled in the fourth quarter.
Broker Investec Securities expects adjusted full-year pre-tax profit of $60m, rising to $143m in 2015 and $324m in 2016, reflecting a full year's contribution from GSA. That would give EPS of 15.9¢, 15.7¢ and 35.6¢, respectively.
| ITHACA ENERGY (IAE) |
| NET ASSET VALUE: |
268¢ |
NET DEBT: |
64% |
| ORD PRICE: |
131p |
MARKET VALUE: |
£430m |
| TOUCH: |
131-133p |
12-MONTH HIGH: |
165p |
LOW: 105p |
| DIVIDEND YIELD: |
nil |
PE RATIO: |
7 |
| Half-year to 30 Jun |
Turnover ($m) |
Pre-tax profit ($m) |
Earnings per share (¢) |
Dividend per share (¢) |
|
£1=$1.69
|
| 2013 |
188 |
73 |
20 |
nil |
| 2014 |
200 |
-2.5 |
5 |
nil |
| % change |
+6 |
- |
-75 |
- |
IC View:
Everything hinges on the success of the GSA project. But three positive well results have significantly de-risked the project and investors now await the departure of the production vessel in spring 2015. Should all go broadly to plan, Ithaca's shares should rerate sharply - they currently trade on just six times 2016's forecast earnings - and we reiterate our buy tip (106p, 16 May 2013). Buy.
Last IC view: Buy, 151p, 30 Jun 2014
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