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.
DEC reported a hedged adjusted EBITDA margin of 50% for 2022 (2021: 50%) - the fifth year in a row in which this figure has been at or above the 50% mark. Including the recent acquisition of assets from Tanos Energy Holdings, we calculate that 83% of DEC's 2023 natural gas production (gas accounts for 88% of output) is hedged at USD3.42/MMbtu – USD0.26/MMBtu above the average level of the futures strip. Last year 90% of production was hedged at USD3.24/MMBtu – USD3.40/MMBtu below the futures strip. Operating costs should fall in 2023 due to below average base lease operating expenses at the acquisition, synergies between the acquisition and nearby DEC assets, and because both production taxes and 3rd party gathering and transportation costs are linked to the commodity price. We expect a positive swing in the realised hedging result as well as lower operating costs to push adjusted EBITDA above the 2022 level and the margin again to reach 50%. Meanwhile, for good measure the stock is currently yielding 14.0%. We maintain our Buy recommendation at an unchanged price target of GBp180.
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