Australia | Jul 26 2006
By Chris Shaw
Following a quarterly that was broadly in line with forecasts in production terms but disappointing from a revenue standpoint, the lack of changes with respect to the market’s outlook for Oil Search (OSH) shows the focus remains on the company’s PNG gas project.
Credit Suisse, which is at the lower end of the market in terms of production estimates, notes Kutubu output was down 19% but much of this was due to unplanned outages and so should be made up in the coming half. GSJB Were agrees, noting the company has maintained its full year production guidance. Credit Suisse also notes Moran production figures were good, though it suggests there is some downside risk to estimates for Gobe as that field continues to decline.
Sales revenue for the quarter was US$140.2m, which was well below most estimates of closer to US$200m, though this can be explained by lower shipments thanks to bad weather. But like the production numbers, Deutsche sees this trend being reversed in the coming half year assuming there are no further weather-related delays.
Despite guidance being maintained a number of brokers have trimmed their full year earnings estimates, JP Morgan and GSJB Were among them. JP Morgan has cut its earnings forecast for the year by 3% to US$231.1m, while in 2007 they have been cut 7% to US$168.1m. Were’s estimates have been cut in 2006 by 5.4% to $311.3m, in 2007 by 8.5% to $300.7m and in 2008 by 9.2% to $187.6m, but it notes its oil price estimate is below the current spot price so there remains upside risk to its numbers. As evidence of this, the broker points out its valuation would increase from its current $3.27 to $4.79 assuming spot oil price forecasts.
Merrill Lynch is broadly in line with Weres in terms of its estimates, forecasting full year earnings estimate of $298.6m this year, $320.4m in 2007 and $167.4m in 2008. But like the majority of brokers to cover the stock it suggests there remains some potential positive catalyst, particularly as the company has an extensive exploration program planned for the December half. It also suggests a go-ahead decision on the PNG Gas Project, which it expects this half, will be a positive for the company and its share price.
The FN Arena database shows six brokers and equity researchers rate the stock as Buy while four rate it as Hold, none of these ratings having changed as a result of the company’s quarterly report. The average share price target is $4.44, while the median price target according to Thomson One Analytics is $5.01. Thomson One shows median profit forecasts stand at $311m this year, $298m in 2007 and $223m in 2008.
Oil Search shares closed yesterday at $4.21 but have weakened slightly in today’s trading to $4.15. Credit Suisse notes at current levels it remains at the upper end of its historical trading band.