First Berlin Equity Research has published a research update on Diversified Energy PLC (ISIN: GB00BYX7JT74). Analyst Simon Scholes reiterated his BUY rating and increased the price target from GBp 160.00 to GBp 180.00.
On the basis of the current hedging portfolio and commodity futures strips, we expect DEC to report hedged EBITDA margins of close to 50% in both 2022 and 2023. Including swaps, collars and sold calls, 86% of our 2023 output forecast is hedged. For 2024 this figure was 73% as of the end of July but is rising as management takes advantage of favourable market conditions to layer on additional hedges. The 2023 NYMEX gas futures strip has fallen over the past month on concerns that slowing economic growth will bite into domestic US natural gas demand next year. However, we calculate that a further 10% decline in 2023 commodity strips would lower next year’s hedged adjusted EBITDA margin by only 1.9 percentage points. For good measure, recent sterling weakness has not only pushed the dividend yield to 11.8% but has prompted management to mount a buyback of up to 10% of the share capital. We maintain our Buy recommendation and have raised the price target from GBp160 to GBp180 to reflect increases to our earnings forecasts following the acquisition of assets from Conoco Philips and the higher sterling value of the dividend following recent depreciation of the British currency.