From the AFR this afternoon - bodes well for the sector and potentially exploration plays like CTP.
Why oil and gas stocks are a bargain
Angela Macdonald-Smith
Sep 13, 2021
Investors turning their backs on oil and gas stocks risk missing out on an eventual recovery in the sector once the market wakes up to the huge gap that has built between soaring commodity prices, that will boost company profits, and depressed share prices.
Market sources point to a disconnect between share prices and oil and gas commodity prices that has been evident for months but is now becoming “ridiculous” given the buoyant LNG market and continuing robust crude oil prices, which are swelling cash flows for producers.
The heightened wariness of investors to environmental, social and governance (ESG) concerns in relation to natural gas is thought to be a big part of the problem.
But some are anticipating an inevitable catch-up that could see share prices surge 30 per cent or more in a short time as the market recognises the impact of higher prices on cash flows and earnings.
“You’ve got big uplifts coming through and where in this market can you find genuine earnings growth?” said Romana Sala Tenna at Katana Asset Management.
“Genuine earnings growth is a rarity – that’s why people are paying so much for technology stocks – so I think when we start to connect the dots and see the earnings growth coming through, it’s going to be too compelling for some investors.”
The Australian energy sector is “primed for a re-rating” despite the ESG headwinds, says JPMorgan energy analyst Mark Busuttil, who estimates that the sector is trading 50 per cent below the valuation implied by Brent oil prices.
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