Fox-Davies Capital retains 'buy' rating and 200p target for Gulf Keystone despite 'disappointing' BG settlement

Fox-Davies Capital (FD Capital) retained its 'buy' rating and 200 pence price target for Gulf Keystone Petroleum (AIM: GKP) despite what the broker called a misjudgment of the value of the company’s Algerian assets after its interest in the Hassi Ba Hamou permit was transferred to BG Group (LSE: BG) for US$9.9 million to settle claims and counterclaims between the parties in an earlier announced arbitration.

The broker said that the outcome was disappointing as the consideration received for the assets was lower than it expected, taking full responsibility for misjudging the value of Gulf Keystone’s Algerian assets instead of attributing the shortfall to the company’s failure to negotiate a better deal with BG.

Still, FD Capital said that anything less than US$0.4 per boe (barrel of oil equivalent) was “a bit of a squeeze,” and noted that as the terms of the agreement were confidential, it could contain unexpected lifelines, with BG dropping its US$7.5 million litigation against the company being the most obvious one.

The report noted that the value shortfall only represented the equivalent of 12 MMB (million barrels) of resources, or 3% of the estimated net risked resources for the company in Kurdistan.

The price target, which favorably compares to the current market value of 82.5 pence per share, was not downgraded due to the fact that a third party assessment put the resources below the current target depth (TD) at 1-5 Bbbl (billion barrels), which was not reflected in FD Capital’s target.

The broker further added that the stock had “further to go” once the necessary funding is secured.

http://www.proactiveinvestors.co.uk/companies/news/13589/fox-davies-capital-retains-buy-rating-and-200p-target-for-gulf-keystone-despite-disappointing-bg-settlement-13589.html