First Berlin Equity Research has published a research update on Deutsche Rohstoff AG (ISIN: DE000A0XYG76). Analyst Simon Scholes reiterated his BUY rating and increased the price target from EUR 36.00 to EUR 38.00.
Q3 results showed a 220% jump in revenue to €46.0m (Q3/21: €14.4m) while EBITDA more than trebled to €38.3m (Q3/21: €12.2m). The very strong performance was driven by increases in realised pricing, volume and the USDEUR exchange rate of 71%, 60% and 17% respectively. Despite a 12.2% sequential decline in volume, Q3/22 EBITDA was very close to the Q2/22 figure of €38.8m. We estimate that this was a function of a stable realised euro-denominated price for oil and an increase in the realised natural gas price in euro terms. On 10 October DRAG announced a second JV with Occidental Petroleum which will drill and bring into production 15 wells (5 in 2023 and 10 in 2024). We expect these wells to generate revenue of ca. €50m during the 12 months from mid-2024. High commodity prices, robust production from existing wells, and the second Occidental JV have prompted management to raise EBITDA guidance for 2022 and 2023 by 4% to €128m-€133m and 10% to €125m-€140m respectively compared with previous guidance given at the end of April. DRAG have also given first guidance for 2024 which calls for EBITDA of over €100m. We have raised our price target from €36.00 to €38.00 to reflect the positive impact on our forecasts of the second Occidental JV and the recent increase in DRAG's stake in its Cub Creek subsidiary from 88.5% to 98.0%. The increases to our forecasts outweigh an upward revision to our WACC estimate from 10% to 11% due to the rise in the yield on the 10 year German government bond from 1.2% to 2.2% since our most recent note of 13 July. Our valuation is based on DCF methodology and is also supported by EV/EBITDA multiples which are below 2x out to 2024. We maintain our Buy recommendation.
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