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Gulf Keystone Petroleum Ltd

After running the rule over bear favourite GKP we at ValueTheMarkets believe that the heavily targeted Gulf Keystone Petroleum has just as much to argue the long tack against the broadside of shorters. Clearly the lack of fizz or support for the CEO and his jaded movements in the background selling stock last year should be curtains for Todd.

We see some value both in the financials as expectation is now grounded coupled with the technicals which show a levelling of the playing field. Shares trade at just over 100p after the first day on the main exchange and with many P.I’s looking to load up their ISA’s, VTM suggest GKP will rebound to 125p in the short term now the dust has settled on the initial bear raid.

There have been some concerns noted in the prospectus that was released regarding funding. A maximum shortfall in working capital requirements of $103m by 31st January 2015 which would then decrease from that date. That being said the company is not looking to raise funds via a funding channel, instead they will look to issue a debt offering to fixed income investors of up to $250m. The firm’s cash position may be enhanced by numerous events over the next 12 months, which also includes raising sales from Shaikan to 40,000 barrels a day.

From a fundamental perspective, GKP’s revenues are expected to be lower in FY2013 but the loss should be reduced. This FY2014 is expected to be much healthier with revenues jumping from around £16m in 2013 to £120m in 2014. A pre-tax loss of £35m is expected to turn to a £26m pre-tax profit. FY2015 continues the trend with revenues expected to be £279m and pre-tax profit of £105m. Based on the forecasted 2015 numbers, the PE calculates to around 9.1.

Buy – 125p Target

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