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Premier: everything but the price

With its massive refinancing out of the way, and cheap production growing, should Premier be back on the bucket list?
August 25, 2017

When it comes to Premier Oil (PMO), the most obvious price deficiency has been Brent crude. On average, a barrel of Premier product sold for $51.70 (£40.39) in the first six months of 2017. That was a 30 per cent improvement on the previous year, but still low enough for the group’s accountants to warn as recently as April of a “material uncertainty that may cast significant doubt upon the use of the going concern basis of accounting”.

IC TIP: Hold at 56p

Half-year numbers removed that reference to potential insolvency, following the successful completion of Premier’s refinancing at the end of July. The 'maturity' can has been kicked down the road to at least 2021, while debt reduction has begun in earnest. That latter assessment might sound charitable, given that net borrowings fell just 1 per cent in the period under review, but investors have been promised evidence of de-leveraging by the year-end. By that point, it is expected that the Catcher field will finally be generating cash. Additional help should come courtesy of the $42.6m that Al-Haj Group still owes for Premier’s Pakistan business, as well as the pending sale of Premier’s entire interest in the Wytch Farm field for $200m, plus the retirement of $75m-worth of decommissioning liabilities. But the most important assertion regarding financing – for bond and equity holders alike – was Premier’s forecast that debt would fall “at current oil prices”.

Depending on your starting point, Premier’s turnaround is in its infancy or maturity. It might therefore follow to ask whether the share price should be higher, too. Despite planned disposals, full-year production is forecast to increase from 75,000 barrels of oil equivalent per day (boepd) to as much as 80,000boepd, while operating expenditure is not expected to pass $16 a barrel. Capital expenditure, predictably chastened in the first half of 2017, will tick up to $325m for the full year – still well below management’s original budget.

On average, analysts are guiding for full-year pre-tax profit of $35.1m and an adjusted loss per share of 1.7¢, rising to $243m and 27.2¢ in 2018.

    PREMIER OIL (PMO)   
ORD PRICE:56pMARKET VALUE:£287m
TOUCH:55-56p12-MONTH HIGH:100pLOW: 43p
DIVIDEND YIELD:NILPE RATIO:65
NET ASSET VALUE:169¢*NET DEBT:$2.74bn
Half-year to 30 JunTurnover ($m) Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
201636799.331.8nil
2017546-3.67.2nil
% change+49--77-
Ex-div:n/a   
Payment:n/a   
£1=$1.28. *Includes intangible assets of $1.27bn, or 248¢ a share.