Stifel upgraded Capricorn Energy on Thursday to ‘buy’ from ‘hold’, as it said the proposed all-share deal with Tullow Oil significantly undervalues the group and a higher offer will likely be necessary for it to complete.
Stifel lifted its price target on shares of Capricorn to 271p from 211p. It also upped its NAV estimate by around 5%, assuming that the company’s Senegal oil project sold to Woodside in 2019 starts up in 2023 rather than 2024. It noted that an earlier start to the project would mean a larger contingent payment to Capricorn.
Stifel said the current offer made by Tullow for Capricorn reflects only the value of its balance sheet cash at end-2022 and doesn’t pay for estimated value for the other assets, including the contingent payments due from the Senegal and North Sea disposals, and the Egypt assets.
Tullow announced earlier this month that it had agreed to buy Capricorn in an all-share deal.
Under the terms of the transaction, Capricorn shareholders will be entitled to receive 3.8068 new Tullow shares for each of their shares. Capricorn shareholders will own 47% of the combined group, while Tullow holders will own the rest.
Tullow said the merger would create “a leading African energy company with a material and diversified asset base and a portfolio of investment opportunities delivering visible production growth”.
At 1310 BST, the shares were up 3.2% at 218.60p.
