Australia | Aug 28 2006
By Chris Shaw
Australian Worldwide Exploration (AWE) has been a reasonable performer over the last year, the shares rising from around $2.00 last August to in excess of $3.00 now. This is despite the company last week reporting a loss for the year of $7m, though this was an improvement over the $16.4m loss of a year previous.
Merrill Lynch expects this will also be the last loss reported by the company, as earnings look set to increase strongly going forward thanks to the commencement of production at its Cliff Head, BassGas and Casino projects.
This has set the company up for a strongly growing production profile over the next few years, with the broker forecasting total output will increase to around 4.4m barrels of oil equivalent (mmboe) in 2007 before increasing another 75% in 2008. It is this production profile that is one point of interest for the market, as it is being matched by solid increases in earnings.
Merrills is forecasting a profit next year of $74.3m, which appears conservative next to ABN Amro’s estimate of $103.4m and the GSJB Were forecast of $104.4m. According to Thomson One Analytics the median earnings estimates for the stock for 2007 is $108m, rising to $216m in 2008.
But strong earnings growth is only half the story, as the company is also set to commence an extensive exploration program centred around its Tui field in New Zealand, which should run for several months. ABN Amro points out the field offers upside both from its production profile and the exploration potential of the area as in production terms the broker expects the field will quickly achieve an output of around 50,000 barrels per day, meaning the payback period will be as short as four months.
From an exploration standpoint the broker estimates the upside to valuation at as much as $1.00 per share, while GSJB Were suggests the potential for positive news flow will see the stock continue to enjoy support from the market. ABN Amro also points out there is some potential for the company to sell its stake in the non-key BassGas and Clif Head operations, as these offer less exploration upside and so could provide funds to be used elsewhere. But with earnings expected to grow strongly, there is no urgent need for any such sale to take place.
The FN Arena database shows Australian Worldwide Exploration is rated as Buy three times, compared to two Hold and two Underperform ratings. The average price target on the stock is $3.42, while Thomson One shows the median price target is $3.30.
AWE shares traded slightly higher today, the stock up 3c to $3.27.