On Friday, Berenberg initiated coverage on Galp Energia SGPS SA (OTC:GLPEY) (GALP:LI) (OTC: GLPEF), issuing a Buy rating and setting a price target of €21.00. The firm's outlook for the energy company is based on the potential of the recent Mopane discovery offshore Namibia. The discovery is expected to act as a catalyst through upcoming appraisal drilling and the anticipated conclusion of a farm-out agreement.
The company's growth is also anticipated to be supported by its existing production portfolio in Brazil, which is projected to generate stable cash flow. This cash flow is seen as a key factor that will contribute to funding Galp's growth capital expenditures. Berenberg's assessment also suggests that Galp could possibly become an attractive merger and acquisition (M&A) target for integrated peers within the industry.
In terms of shareholder returns, the analyst forecasts a relatively stable cash return rate of between 6% and 6.5% over the medium term. This stability is coupled with the potential for significant long-term growth, which is largely expected to be fueled by the cash flow from the Mopane development.
Despite trading at a premium compared to its peers, Berenberg believes that the premium is warranted. The firm attributes this to the scale of the discovery in Namibia and the long-term growth prospects it presents for Galp Energia (ELI:GALP). The initiation of coverage with a Buy rating and a price target of €21 reflects this positive stance.
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