First Berlin Equity Research has published a research update on Diversified Energy PLC (ISIN: GB00BYX7JT74). Analyst Simon Scholes reiterated his BUY rating and maintained his GBp 180.00 price target.
H1/23 results once again demonstrated the effectiveness of DEC’s business model in delivering high profits irrespective of the level of commodity prices. Thanks mainly to its hedging portfolio, DEC succeeded in raising hedged adjusted EBITDA by 26.4% to USD283m (H1/22: USD224m), despite the average H1/23 Henry Hub gas price of USD2.40/MMBtu, which was 60% below the prior year period level of USD6.05/MMBtu.The margin was 52.2% which suggests that the company is well on track to report a full-year hedged adjusted EBITDA margin of =50% for the sixth year in a row. The DEC share fell below GBp85 on 18 September on news of the departure of CFO Eric Williams, who has been with the company since 2017. His successor, Brad Gray, joined DEC in 2016 as Finance Director and COO before concentrating on the latter role following the arrival of Mr Williams. Mr Gray is a Certified Public Accountant who held CFO positions (at Royal Cup Inc. and The McPherson Companies) for over 10 years before working for DEC. We therefore expect a seamless handover of the CFO role and believe that the decline in the share price is unwarranted and presents a buying opportunity. As we pointed out in our update of 17 July, DEC looks set to be a prime beneficiary of multi-year growth in US LNG exports. LNG export growth is the main reason for the current upward slope in the gas futures curve to an average of USD3.78/MMBtu over the five year period January 2024 to December 2028. The stock’s current yield of 17.0% is very attractive, as is the upside potential to our unchanged price target of GBp180. We maintain our Buy recommendation.