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Afren gushes cash

Increased production underpins Afren's exciting exploration prospects and, on only seven times forward earnings, the shares continue to rate a buy
August 21, 2012

Revenues and cash flows leapt during Afren's first half as the group massively ramped up production. And with a number of exciting exploration and well development projects planned, the lowly-rated shares continue to have further upside potential.

IC TIP: Buy at 127p

First-half output jumped from 12,975 barrels of oil equivalent per day (boepd) to 41,251 boepd. While this is below the full-year target of 42,000 to 46,000 boepd, management expects a stronger second half to make up the ground. And, despite slightly lower selling prices of $107.90 per barrel for oil and $6/mcf for gas, operating cash flow before movements in working capital rose almost fivefold to $558m (£354m).

Production at the group's Ebok field in Nigeria is progressing well and work to bring the Barda Rash field in the Kurdistan region of Iran into production is going to plan. In addition to a "world class" find from the Sirmit-2 well in Kurdistan, the group has hot exploration prospects over the next 12 months in Tanzania, Kenya and another well in Kurdistan - Sirmit-3. Afren has also begun development drilling at its Okoro East field in Nigeria.

Broker Investec forecasts full-year pre-tax profits of $468m and EPS of 27.6¢ (from $221m and 12.3¢ in 2011).

Afren (AFN)
ORD PRICE:127pMARKET VALUE:£1.4bn
TOUCH:126-127p12-MONTH HIGH:150pLOW: 72p
DIVIDEND YIELD:nilPE RATIO:10
NET ASSET VALUE:121¢NET DEBT:44%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2011161442.3nil
20127723169.3nil
% change+379+622+304 -

£1=$1.576