Analysts at Berenberg downgraded exploration and production outfit Harbour Energy from ‘buy’ to ‘hold’ on Wednesday, stating more clarity was needed on reserves.
Berenberg said Harbour Energy’s capital markets day last week saw the group outline its recent performance and medium-term guidance, with production and cost outlook being broadly in line with its previous numbers and a $200.0m dividend coming in well and truly ahead of its previous $60.0m modelling.
However, Berenberg stated Harbour’s Tolmount project continued to be “challenging”, with another project delay and a reduction in reserves, and said it now expects lower group level reserves based on the company’s year-end 2021 guidance.
“The company guided to a 25-50% reduction in 2P reserves at Tolmount, or a circa 10-20mmboe reduction. In addition, year-end 2021 group-level reserves were indicated as being roughly in line with Chrysaor’s year-end 2020 level – roughly 458mmboe based on the competent person’s report,” said the analysts.
The German bank, which also lowered its target price on the stock from 425.0p to 350.0p, highlighted that this was below the expected level of 519.0m barrels of oil equivalent when adjusting pro-forma year-end 2020 reserves for pro-forma production and the Tolmount write down.
“The company points to CPR assumptions that are typically more conservative than management and flags that the numbers have not been finalised; however, we find this level of uncertainty unhelpful,” said Berenberg.
“The net result is a 30% reduction in core net asset value – we reduce our price target to 350.0p (from 425.0p) and move to ‘hold’ (from ‘buy’). On our updated forecasts, Harbour is trading on FY22 EV/DACF of 4.6x, EV/EBITDA of 3.6x and a 29% FCF yield.”