Pan Pacific Offers The Best Leverage To Tui Production FN Arena News - July 05 2007
By Chris Shaw
With the oil price now comfortably above US$70 per barrel the oil sector is again attracting support and while first instincts may be to turn to heavyweights such as Woodside Petroleum (WPL) Intersuisse suggests investors look at Pan Pacific Petroleum (PPP).
The broker rates the stock as a Buy for two reasons, the first being the Tui field is about to commence production following the completion of the fourth and final well in the field’s development program. Pan Pacific has a 10% stake in what should become a 50,000 barrels of oil per day field, meaning the company is soon to enjoy the benefits of strong cash flows.
This is not the only reason to look at the stock according to the broker, as it also likes the potential of the Hector project in which the company holds a 14.1% stake. To date the field is estimated to contain more than 100 million barrels of recoverable reserves, though further drilling at the Hector South prospect could see this increased. Add in exploration upside in areas surrounding the Tui development and the company’s reserve base and potential production growth profile looks attractive.
On Intersuisse’s numbers the company is expected to make a profit in FY08 of $44.9m, which compares to a forecast loss of $12.5m this year and the small profit of $1.7m recorded in FY06.
This would equate to FY08 earnings per share (EPS) of 7.6c, which would equate to a P/E (price to earnings ratio) of around 4x, making the stock very cheap given the market average P/E is around 17x.
While the market has begun to recognize this and pushed the stock up to a new high for the year of more than $0.30 compared to a low of just $0.14, the broker remains positive given in its view the company offers the best leverage to both projects.
At current prices the company has a market capitalisation of around $150m, the result being none of the brokers in the FNArena database actively research the company.
Shares in Pan Pacific today are stronger and at 2.00pm were up 2c at $0.325.
PPP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
