Aradel Holdings: Analysts Set 12-Month Target Price, See 79% Upside

Analysts at CardinalStone Limited have set 12 month target price of N1258.61 for Aradel Holdings Plc with more than 79% upside potential. The investment firm initiated a coverage on Aradel after public listing announcement.

Recalled that Aradel Energy Limited, recently signed a sale and purchase agreement to acquire the 100 per cent interest in the Olo and Olo West marginal fields from TotalEnergies EP Nigeria Limited and the Nigerian National Petroleum Company Limited (NNPC).

The acquisition was completed for a consideration of $16 million, plus $3.5 million of deferred and conditional payments, according to a regulatory filing on the Nigerian Exchange.

On expectation that the Holdings Company’s earnings would improve, GCR Ratings also upgraded Aradel creditworthiness.  The outlook on the ratings is stable, according to GCR which noted that the upgrade of Aradel Holdings Plc reflects its sustained and robust earnings growth and cash generation.

Aradel revenue spiked by 119.2% to $342 million in 2023 and further by 20.5% annualized, during the first half of financial year 2024.

“We initiate coverage on Aradel Holdings Plc (ARADEL) with a 12-month target price (TP) and projected market capitalization of N1,258.61 and N5.47 trillion, respectively”, CardinalStone said in its initiation coverage note.

Analysts said the target price implies a price return of 79.1% and a Buy recommendation on the stock, saying outlook on ARADEL is premised on projected improvements in return metrics.

CardinalStone explained that ARADEL’s business model spans upstream and downstream segments of the oil and gas industry, including oil production, gas processing, and refining operations.

Its diversified asset base across 2P and 2C reserves at the Ogbele, Omerelu, and operating mining lease (OML) 34 fields positions the company for long-term growth.

This structure also provides investors with the opportunity to key into a business with relatively stable earnings.

“The company’s strategically larger 2P gas reserves of 410.8 Bscf compared to 48.6 MMbbls in liquid reserves suggest a stronger focus on higher-margin gas production and development, which is expected to drive future earnings.

“The company’s strategic partnerships, like the consortium with Renaissance Africa Energy Company Limited (RAEC), enhance its capabilities and access to new business opportunities, such as the acquisitions of stakes in strategic assets.

“ARADEL has demonstrated strong operational capabilities with plans to improve its refinery operations.

“Particularly, the business plans to commission its PMS train in 2025 to boost diversification advantage at a time when the broader sector is edging towards deregulation and market-driven prices.

“In addition, to ensure stable and predictable pointers to future distributions, ARADEL established a dividend policy framework in FY’23, which recommends paying the lower of 20.0% of cash flow from operations and 50.0% of profit after tax.

“The company also ensures a relatively fair liquidity provision for shareholders by maintaining both interim and final dividend payments”.

CardinalStone estimated Aradel’s enterprise and equity values of $2.32 billion and $2.91 billion, respectively, with the higher equity value underscored by the company’s net cash position.

Analysts said key risks to their expectations include potential delays in regulatory approvals, oil price volatility, strong competition, infrastructure downtime, and security issues in the Niger Delta that could disrupt operations.

However, the likely exploration of 2C contingent resources and the success of strategic acquisitions are major upside risks, the investment banking firm added. #Aradel Holdings: Analysts Set 12-Month Target Price, See 79% Upside

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