Australia | Jun 07 2007
By Chris Shaw
Until the end of last month when Credit Suisse downgraded the stock to Neutral on valuation grounds AED Oil (AED) had scored a perfect four for four Buy ratings in the FNArena database on the back of its expected production growth from the Puffin oil field.
With the stock having pulled back a little since the Credit Suisse change the valuation scenario is improving, enough for Intersuisse to rate the stock as a Buy at current prices given the upcoming commencement of production.
The broker notes production is forecast to start in the September quarter at a rate of around 30,000 barrels per day, while this should be added to in 2008 via the recent acquisition of the Talbot oil field located just 60km away from Puffin.
This should enable some infrastructure to be shared, so lowering production costs for the company. At the same time there remains exploration potential at Puffin, while the broker also is attracted to the fact the oil produced will be Tapis crude, which attracts a premium given its relatively low sulphur content.
On the broker’s estimates the company should generate a net profit in FY08 of $338.4m, compared to a forecast loss this year of $14.5m. Such a result would translate into earnings per share of 226.4c, which equates to a P/E (price to earnings ratio) of just over 3x at current prices.
Shares in AED Oil are stronger today despite the weaker overall market as at 3.30pm the stock was up 17c at $7.37. This compares to a recent high of $7.76, while the average price target in the FNArena database is $7.42.