Harbour Energy sell-off is a buying opportunity says Stifel

Interim results from Harbour Energy PLC were almost a non-event given the looming $11.2 billion Wintershall acquisition, but analysts at Stifel said the numbers served to highlight that the recent sell-off in the shares presents "a buying opportunity".

Based on the expected size of the deal, the current business is estimated by the analysts to be only 30% of proforma production and only 10% of expected free cash flow (FCF), assuming a "worst case" scenario for UK windfall tax.

The acquisition, which was announced in December, will add a catalogue of assets in Europe, North Africa and the Americas with a combined production profile of over 500,000 barrels per day.

On Wintershall, the timing was brought forward slightly by Harbour today, with an expected closing of the deal "early" in the fourth quarter of this year with all UK approvals received.

Stifel noted that Harbour's UK business performed well in the first half of the year, driving around a 2% production upgrade, with FCF expected to be marginally positive at $100-200 million, due to much higher tax payments in the second half, while non-UK businesses also progressed with the key Zama project in Mexico starting the engineering design phase and Indonesia revising contractual terms to allow for additional production volumes.

As a reminder, the analysts said there has been "no clarity" on the UK tax regime, other than the tax rate will move to a headline 78% from the current 75%.

"What matters is not the headline tax rate but the amount of capex that can be offset against tax. We think this uncertainty is already having an effect on industry investment plans for 2025."

Stifel reiterated a 'buy' rating on Harbour, based on the "unappreciated transformation of both the FCF generation and the risk profile of the company", with a 475p target price also retained.

"We think the recent sell-off is a buying opportunity."

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