Gran Tierra Energy Target Price Cut $1.50 at Credit Suisse, Ests Lowered
Credit Suisse today lowered its target price on Gran Tierra Energy (GTE.TO) to C$6.50 (from C$8.00) based on an updated commodities forecast. GTE's "outperform" rating has been maintained.
Credit Suisse Macro View: Credit Suisse recently revised its global GDP forecasts from 3.6% and 4.2% for 2012E and 2013E, respectively, to 3.3% and 3.8%. Based on lower global growth forecasts, Credit Suisse is also now updating its commodity price views.
Brent Price Outlook: In the context of the revised macro outlook, Credit Suisse now expects a base case for Brent to hover around US$100 per barrel over the next few years, with near term downside risks this summer and a more pronounced trajectory towards US$110 per barrel later next year.
Changes to Estimates: We have decreased our cash flow estimates for 2012E and 2013E by roughly 23% and 26%, respectively. We are also lowering our 2012/2013/2014 EPS estimates to $0.40/$0.59/$0.83 (from $0.76/$1.11/$1.25). Our current production forecast remains unchanged, although we note that continued pipeline disruptions on the OTA pipeline continue to weigh on the near term production outlook.
Pipeline Disruptions Could Weigh: The one apparent chink in Gran Tierra's armos has been, and continues to be, the OTA pipeline that has been disrupted in both Q1 and Q2 this year. Further pipeline disruptions could lead to a definitive downward revision in the company's production guidance for the year.
Recommendation: Our new target price of C$6.50 (from C$8) is a reflection of our 50/50 weighted valuation method based on our updated risked NAV of US$6.56 per share and 5.5 times our 2012E cash flow. We have elected to maintain our Outperform rating at this time, given the company's diversified portfolio of opportunities, coupled with a strong balance sheet.
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