Developing Katlan Project Will Ensure Long-Term Production Stability

Key Takeaways

• Strategic focus on Israeli operations and new contracts enhances production stability and revenue growth, with export opportunities boosting potential earnings.
  
• Deleveraging strategy and disciplined capital allocation aim to improve financial stability and shareholder returns, with potential revenue increases from targeted M&A activities.
  
• Energean's heavy reliance on Israel and operational risks in the region pose threats to stability, growth, and revenue streams, complicating expansion and liquidity efforts.

Catalysts

Engages in the exploration, production, and development of oil and gas.

• Energean's strategic focus on Israeli operations and the development of the Katlan project, which includes tying smaller gas accumulations to its FPSO, aims to ensure long-term production stability and increase gas output, boosting future revenue and earnings.
  
• The company's ability to secure new gas contracts in a growing Israeli market with strong demand for gas, alongside opportunities for exports to neighboring countries, positions Energean to enhance its revenue streams from new and existing markets.
  
• The ongoing deleveraging strategy, supported by the proceeds from asset sales to Carlyle and anticipated debt reduction, is expected to improve net margins and financial stability, enhancing earnings potential.
  
• Energean's disciplined capital allocation and commitment to shareholder returns, including a targeted $1 billion in dividends by 2025, suggest an ongoing focus on shareholder value, which can positively affect earnings per share.
  
• Future M&A activities targeting value-accretive gas assets in the EMEA region, combined with stable Israeli gas operations, could diversify and strengthen Energean’s production portfolio, leading to increased revenue and earnings over time.

Energean Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Energean's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.2% today to 21.4% in 3 years time.
• Analysts expect earnings to reach $386.1 million (and earnings per share of $2.12) by about February 2028, up from $273.5 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $601.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from 8.1x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 9.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.12%, as per the Simply Wall St company report.

Energean Future Earnings Per Share Growth

Risks

• The geopolitical instability in the region, specifically the challenging situation in Israel, poses a risk to Energean's operations, which could affect production and ultimately impact revenues and net margins.
  
• Energean's significant reliance on a single region (Israel) for a majority of its production and revenue stream increases its operational risk and exposure, potentially impacting the stability of its earnings.
  
• Delays in infrastructure projects or unforeseen challenges in the expansion of export routes could limit Energean's ability to tap into lucrative external markets, affecting future revenue growth potential.
  
• The dependency on external approvals for major transactions, such as the Carlyle deal, carries execution risk, which could impact liquidity and planned capital allocations if not closed on time, thereby affecting net margins and financial flexibility.
  
• The uncertain commercial viability of projects such as the Prinos Carbon Storage, which depend on favorable CO2 pricing and governmental support, pose a risk to future revenue streams if pursued without aligning with Energean's current dividend strategy.

Valuation

• The analysts have a consensus price target of £10.873 for Energean based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £13.25, and the most bearish reporting a price target of just £8.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $386.1 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 11.1%.
  
• Given the current share price of £9.71, the analyst price target of £10.87 is 10.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.