First Berlin – Deutsche Rohstoff AG Research Update (30/09/2019)

First Berlin Equity Research has published a research update on Deutsche Rohstoff AG (ISIN: DE000A0XYG76). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 23.00 to EUR 18.10.

Abstract
We expect production to jump 31% in 2020 and by a further 21% in 2021 following the start of production at the Olander and Knight drilling pads from December 2019 and January 2021 respectively. Revenue should clearly outpace volume next year as the BOE (barrel of oil equivalent) mix shifts from gas to more valuable oil. Our forecasts are in line with management guidance for 2019 sales and EBITDA of €40-50m and €25-35m respectively and 2020 sales and EBITDA of €75-85m and €55-65m respectively. We estimate that the €13.2m impairment taken at the end of 2018 with respect to DRAG's most important oil and gas producing subsidiary, Cub Creek, implied a 20% reduction in estimated ultimate recovery from existing wells. DRAG reversed half of this impairment in the H1/19 report, but the positive impact of this on our price target is outweighed by a USD6 fall in the oil price at the near-term end of the futures curve since our 14 May note. We have moved our price target down from €23.0 to €18.1 but maintain our Buy recommendation.