First Berlin Equity Research has published a research update on Diversified Energy PLC (ISIN: GB00BYX7JT74). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from GBp 2800 to GBp 1900.

Abstract
Brisk demand growth from LNG exports and electricity generation (with much of the incremental demand stemming from data centres) are the main reasons for the current upward slope in the gas futures curve to an average of USD4.07/mcf over the five-year period January 2025 to December 2029. This is 71% above the USD2.38/mcf seen in 2024. Meanwhile, interest rate stability has allowed DEC to emerge from the acquisition hiatus of 2023/24 which culminated in a volume decline of 3.5% last year. We expect the five acquisitions made since June 2024 to drive volume up 37% this year. In addition, we expect improved profitability to push net debt/trailing twelve months adjusted EBITDA down to 2.3x by the end of 2025 – in line with the company target of 2.0-2.5x. This metric peaked at 3.0x at year-end 2024. A strengthening balance sheet will allow DEC to continue making acquisitions, but with reduced recourse to the equity capital raises which have crimped recent share price performance. Against this background, the recently announced strategic partnership with Carlyle to invest up to USD2bn in existing U.S. proved developed producing (PDP) natural gas and oil assets looks particularly interesting. We expect the deal to enhance DEC’s access to non-dilutive financing, thereby accelerating its growth. DEC is trading at a 36% discount to its peer group based on 2025E EV/adjusted EBITDA, but has a superior growth track record. Applying a multiple of 5.5x to our 2025 adjusted EBITDA forecast (a 20% discount to the peers due to their higher market caps) produces a per share valuation for DEC of GBp1,933. We set a new price target of GBp1,900. Due to sector multiple compression, our new price target is 32% below the price target of GBp2,800 in our most recent note of 29 November 2024, but still offers upside of 80%. We maintain our Buy recommendation.