Energean unveils virgin dividend

It’s a case of steady as she goes for Energean (ENOG). The big news in these results was the confirmation of a first, earlier-than-expected, dividend payment as the gas-focused exploration and production business continues its march forwards towards hitting 200 kboed (thousand barrels of oil equivalent per day) a year.

The return of capital is underpinned by chunky cash flows – operating cash flow was up by 176 per cent to $147mn (£127mn) in the half – plus strong liquidity, and imminent first gas from the company’s flagship Karish project offshore Israel. According to chief executive Mathios Rigas, this “is on track to start production within weeks and will enhance energy security in Israel and the region”.

Karish’s material impact on growth can be seen in production forecasts. Management’s guidance for the full year is for ex-Israel production of 34 to 37 kboed and total production of 49 to 62 kboed, with Karish expected to contribute an annualised 15 to 25 kboed in the fourth quarter.

Total production for the first half came in at 35.4 kboed, which was down by a fifth against last year due to “planned maintenance activities in Italy” and the shut-down at the Greek Prinos facilities. The result was lower than Jefferies’ forecast of 39.2 kboed, but the broker thinks that Energean will reach 200 kboed a year in 2024.

Both the net profit and net debt postings bettered consensus analyst forecasts. Lower finance costs, down by 14 per cent to $39mn, helped the bottom line. Net debt guidance for the full year has been cut to $2.4bn to $2.5bn (down from $2.6bn to $2.8bn), with the cash pot helped by the deferral of a $250mn capex payment in relation to Karish.

A strong pricing environment, meanwhile, allowed the company to raise medium-term guidance. Higher gas prices in Israel and Egypt means that annual revenue and earnings before interest, tax, depreciation, amortisation and exploration expense are now forecast to come in at $2.5bn and $1.8bn, respectively, both up by a quarter.

Stifel analysts said that “within a matter of weeks Energean should become one of the leading cash generators in the sector – the fact it also retains considerable optionality to augment that cash profile, while being aligned with the energy transition should make it a core holding for investors”. The shares are up by around 90 per cent over the last 12 months, but with first gas from Karish and guidance raised we think there is more to come. Buy.

Last IC View: Buy, 1,150p, 31 Mar 2022