SEPTEMBER 25, 2013 ARTICLE 4 OF 5Going to production, Tap value...

SEPTEMBER 25, 2013 ARTICLE 4 OF 5
Going to production, Tap value untapped

TREVOR HOEY

Analysts at Argonaut have initiated coverage on Tap Oil with a buy ­recommendation and a 12-month price target of 76¢, representing a premium of about 40 per cent to its recent ­trading range.

Earnings forecasts differ considerably among brokers for the 12 months to December 31 next year, when Tap is expected to return to ­profitability, but this mainly relates to varying estimates regarding the timing and projected production when its Manora project in Thailand comes on stream.

However, step out to 2015, and there is more consistency, with earnings per share forecasts ranging between 20¢ and 25¢. Argonaut is at the top end of that range but even based on lower-end forecasts, the company looks attractive trading on a price-earnings multiple of less than three.

With Tap’s profile improving, ­courtesy of its return to a production company, Argonaut sees it as good value. The broker highlighted that the 30 per cent-owned Manora project is fully funded for its $97 million share of development costs.

Argonaut values Tap’s share of the Manora project at start-up (mid-2014) at $165 million, and expects production of 4500 barrels of oil per day attributable to the company to generate annual cash flow of $200 million over the first four years.