Date: Thursday 14 Jun 2012
Credit Suisse reacted to Cairn Energy's agreed bid for Nautical Petroleum by cutting its target price for the Scottish oil behemoth.
The $642m deal provides more visibility to Cairn's growth strategy in the North Sea, and looks fairly valued on risked valuation grounds in Credit Suisse's view.
"We maintain our Neutral rating on Cairn Energy and reduce our target price to 362p from 400p to account for the acquisition and current mark-to-market of its Cairn India stake," the broker said.
The Swiss bank says Cairn's balance sheet is strong, at least in theory, with the option of raising around $2.2bn from the sale of its residual stake in Cairn India. "However, the timing of the disposal of the stake is uncertain and this is an important factor if oil prices correct further and equity valuations de-rate. Until we have clarity on the timing of disposal, we expect Cairn to have limited financial flexibility to make further meaningful corporate acquisitions that can unlock value," said Ritesh Gaggar, an oil and gas analyst at Credit Suisse.
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